How to nps withdrawal

Overview

The National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme. It allows subscribers to build a corpus for their retirement through systematic investments. Withdrawing funds from NPS is a crucial aspect of retirement planning, and the process is governed by specific rules and regulations set by the Pension Fund Regulatory and Development Authority (PFRDA).

Understanding NPS Withdrawal Rules

NPS withdrawals are broadly categorized into two main types: partial withdrawal and final withdrawal (also known as exit withdrawal). The eligibility criteria, conditions, and procedures differ for each.

Partial Withdrawal

Subscribers can opt for partial withdrawals from their NPS account under specific circumstances after a minimum subscription period of three years from the date of joining NPS. The purpose of these withdrawals is generally to meet significant financial needs during the subscriber's working life.

Conditions for Partial Withdrawal:

• Minimum Subscription Period: At least three years must have elapsed since the date of joining NPS.
• Purpose: Partial withdrawals are allowed for specific reasons such as:
  • Higher education of children
  • Marriage of children
  • Purchase or construction of a residential house or for the maintenance of a house
  • Treatment of critical illnesses (for self, spouse, children, dependent parents)
  • Self-funding for skill development or retraining or any other personal skill enhancement
  • Startup expenses for a new venture (subject to specific conditions and PFRDA guidelines)
• Limit: A subscriber can make a maximum of three partial withdrawals during their entire tenure in NPS. The total amount withdrawn should not exceed 25% of the total contributions made by the subscriber, excluding employer contributions.
• Process: To initiate a partial withdrawal, the subscriber needs to submit an application form along with supporting documents to their Point of Presence (PoP) or directly to the Central Recordkeeping Agency (CRA).

Final Withdrawal (Exit Withdrawal)

Final withdrawal from NPS can be made upon reaching the age of superannuation (typically 60 years) or at any age after 70 years, whichever is later. There are different rules for exiting NPS before and after the normal retirement age.

Conditions for Final Withdrawal:

• Normal Exit (After 60 years): Subscribers exiting NPS on or after attaining the age of 60 years (normal exit) have the option to withdraw a lump sum amount up to 60% of the total NPS corpus. The remaining 40% of the corpus must be used to purchase an annuity plan, which provides a regular pension income.
• Early Exit (Before 60 years): If a subscriber decides to exit NPS before attaining the age of 60 years (early exit), they can withdraw a lump sum amount up to 20% of the total corpus. The remaining 80% must be used to purchase an annuity plan.
• Specific Circumstances: In case of death of the subscriber, the entire corpus can be paid to the nominee or legal heir. In certain critical illness cases or incapacitation, PFRDA may allow specific withdrawal provisions.
• Annuity: The mandatory purchase of an annuity is to ensure a regular income stream post-retirement. The annuity rates and options are determined by the Pension Fund Managers.

How to Initiate an NPS Withdrawal

The process for initiating an NPS withdrawal, whether partial or final, involves several steps:

1. Login to CRA Website: Access the Central Recordkeeping Agency (CRA) website (e.g., NSDL, KFintech) where your NPS account is registered.
2. Fill the Withdrawal Form: Download the appropriate withdrawal form (Form-S1 for partial withdrawal, Form-S2 for exit withdrawal) from the CRA website or obtain it from your PoP.
3. Complete the Form: Fill in all the required details accurately, including your PRAN (Permanent Retirement Account Number), bank account details, and the reason for withdrawal.
4. Attach Supporting Documents: Depending on the type of withdrawal, you may need to attach supporting documents. For partial withdrawals, this could include proof of the reason (e.g., educational institution fee receipt, marriage invitation, medical certificate). For final withdrawal, documents like proof of age and identity might be required.
5. Submit the Form: Submit the duly filled form along with the supporting documents to your designated Point of Presence (PoP) or directly to the CRA, as per the procedure defined by your CRA.
6. Verification and Processing: The PoP or CRA will verify the submitted documents and details. Once approved, the withdrawal request will be processed, and the funds will be credited to your registered bank account.

Important Considerations

• Tax Implications: While partial withdrawals for specific purposes are tax-exempt up to certain limits, final withdrawal has specific tax implications. The lump sum withdrawal of up to 60% at retirement is generally tax-free. However, the annuity income received from the annuity plan is taxable as per the individual's income tax slab.
• Annuity Purchase: It is mandatory to use a portion of your NPS corpus to purchase an annuity. You have the choice of selecting from various annuity service providers (ASPs) empanelled by PFRDA.
• Nominee Details: Ensure your nominee details are up-to-date in your NPS account to facilitate smooth processing in case of unfortunate events.
• Contact CRA/PoP: For any specific queries or assistance regarding NPS withdrawals, it is advisable to contact your CRA or the nearest PoP.