It’s important to note that the National Pension System (NPS) offers options for withdrawing money from the account before retirement.
This can be done either partially or entirely, but specific rules apply to these withdrawals. Accumulating substantial money by retirement is crucial for a smooth and financially stable post-retirement life.
However, unexpected needs can arise for individuals and families, requiring access to funds. In such cases, those investing in NPS can withdraw money from their account to meet these needs.
Regular contributions to the NPS account, typically deducted from the salary, accumulate a significant corpus by retirement.
The NPS, designed by the central government, aims to create wealth for retirement without worrying about financial emergencies.
In the case of partial withdrawals from the NPS account before reaching the retirement age of 60, certain conditions apply, including:
- New withdrawal rules are set to be implemented from February 01 this year.
- Partial withdrawal is allowed only from the subscriber’s share, not the ownership share in the NPS corpus.
- A minimum service period of three years is required before a partial withdrawal is permitted.
- A maximum of 25 percent of the accumulated amount can be withdrawn in each partial withdrawal.
- Only three partial withdrawals are allowed per subscriber during the employment period.
- After a withdrawal, the subsequent withdrawal is permitted only from the amount deposited after the last withdrawal date.
It’s important to note that partial withdrawal is only allowed under specific circumstances, such as:
- Higher education expenses for the subscriber’s children, including legally adopted children
- Wedding expenses for the subscriber’s children, including legally adopted children
- Purchase or construction of a house in the subscriber’s name (excluding inherited property)
- For medical expenses related to chronic/terminal illness, or in the case of disability
- To start a new venture or seed company
- For professional skill enhancement courses
As for complete withdrawal from the NPS account before the age of 60, the following conditions apply:
- A minimum of five years of service must be completed
- On completion of five years of service, only 20% of the accumulated money can be withdrawn as a lump sum, with the remaining 80% used to purchase annuity plans
- If the total corpus is Rs. 2.5 lakhs or less, the entire amount can be withdrawn at once without the requirement to purchase annuity plans
After retirement, individuals can also withdraw money from their NPS account. The conditions for withdrawal after retirement are as follows:
- If the accumulated amount is Rs. 5 lakhs or less, the total amount can be withdrawn as a lump sum
- If the accumulated amount exceeds Rs. 5 lakhs, a maximum of 60% can be withdrawn as a lump sum, while the remaining 40% must be used to purchase mandatory annuity plans.
- Annuity plans are linked to the stock market and provide a monthly income akin to a pension.
- Income tax on NPS withdrawals is not applicable on money invested in annuity plans, and tax benefits can be claimed under sections 80C and 80CCD for up to Rs. 2 lakhs.