What are the conditions applicable on partial NPS withdrawals?

Partial NPS withdrawals are possible only under certain conditions. The individual has to fulfill these conditions to make withdrawals from the Tier-1 account. However, for Tier-II accounts no such withdrawal conditions are set. It should be noted that government employees, claiming deduction under 80C of the Income Tax Act on the Tier-II account are not given this flexibility of withdrawal. In such a case,subscribers can withdraw only after completion of 3 years.

Partial withdrawals of Tier - I account of NPS are applicable under following circumstances:

  • Higher education of children
  • Marriage of children.
  • Construction or purchase of residential house or flat, either in the name of an individual alone or jointly with the spouse.
  • For establishing his/her own venture or any start-up.
  • To meet medical and incidental expenses arising out of the disability or incapacitation suffered by the subscriber.
  • For the purpose of treatment of critical illness mentioned below. The patient can be the individual himself, spouse, children or dependent parents.
    a.) Cancer
    b.) Kidney failure
    c.) Primary Pulmonary arterial Hypertension
    d.) Multiple Sclerosis
    e.) Major Organ Transplant
    f.) Coma
    g.) Myocardial infarction
    h.) Stroke
    i.) Heart Valve surgery
    j.) Aorta Graft Surgery
    k.) Paralysis
    l.) Serious Life threatening accidents
    m.) Coronary Artery Bypass Graft
    n.) Total blindness
    o.) Any other illness specified by PFRDA, which critical in nature and life threatening.

Apart from the above mentioned conditions, there is another additional situation also under which the individual can make a partial withdrawal, i.e., if the subscriber has completed 3 years from the day of opening the account. However, it should be noted that the three year rule is not applicable if the purpose of partial withdrawal is meeting the expenses of skill development, reskilling or self-development activities.

What is the maximum amount that can be withdrawn?

There is a maximum limit set for the amount that can be partially withdrawn from the Tier-I account of NPS but no such limit has been set for Tier-II accounts. An individual can only withdraw upto 25 percent of his own contributions. It needs to be noted that if both the individual and his employer are making the contribution in NPS then the calculation of the employee’s contribution alone will be considered and not the employer.

What is the limit set on the number of withdrawals?

According to the NPS rules, partial withdrawals are allowed only 3 times during the entire tenure of the NPS, i.e from the date of joining till the age the individual reaches 60 years of age.

What are the taxations rules applicable on NPS?

  • In reference to the current Income tax law, 25 percent of withdrawal that the individual makes from his own contribution to the NPS tier-I account will be tax exempted.
  • As per the Budget 2019, contributions made by the government employees to NPS Tier-II account will be eligible for Tax deduction of upto Rs. 1.5 lakh per annum under section 80C. There will also be a lock-in period of three years for the government employees. For non-government employees there is no lock-in period and also no tax deduction is available for the investment in a Tier -II account.

Frequently Asked Questions (FAQs)

Q - How can an individual get a claim id for NPS withdrawal?

Six months before the date of retirement, a claim ID will be generated by the CRA. Post generation of Claim ID, individual/nodal office will be able to initiate the online withdrawal request in the CRA system. This happens in case of superannuation i.e., at the age of 60 years.

Q - If Premiums are pending, can I still make a partial withdrawal?

Partial withdrawals are only possible if all the premiums are paid on time and the policy is in-force.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.