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An individual can withdraw NPS investments either prematurely or post maturity as per the NPS withdrawal rules. both the options are available to choose from. However, there is also a third option available, i.e. of partial withdrawal. The NPS scheme is regulated by the PFRDA (Pension Fund Regulatory and Development Authority). For all the individuals who had invested in NPS, Budget 2017 was a game changer. The reason for this in this particular budget, it was declared that partial withdrawals from the NPS accounts would be tax-free. Prior to this, partial withdrawals made were taxable.
Budget 2024 Update
The government raised the deduction limit to 14 percent from 10 percent for employers' contribution to the National Pension System (NPS). This means a non-government employee in the new tax regime will now be allowed a deduction of an amount not exceeding 14 percent of the employee's salary instead of 10 percent earlier.
As per PFRDA, individuals can also withdraw their NPS account balance partially, subject to certain rules and regulations. There are mainly two types of NPS accounts Tier I and Tier II. If you want to subscribe to NPS, you must mandatorily open a Tier-I account. Whereas Tier II is an add-on voluntary savings account to a Tier I account holder having flexible rules. While withdrawals from Tier I accounts are allowed only under certain specified conditions, partial withdrawals from Tier II accounts are not subject to any restrictions. However, a government employee contributing to a Tier II account and claiming a deduction upto Rs.1,50,000 under section 80C cannot withdraw any amount before the completion of the 3-year lock-in period.
NPS subscribers can make partial withdrawals from their Tier I account under specific circumstances, such as for treating critical illnesses, funding higher education, or covering children's marriage expenses. To qualify, subscribers must have been invested in the NPS for at least three years. They can withdraw up to 25% of their contributions. Throughout the investment period, subscribers can make partial withdrawals up to three times, with at least a five-year gap between each withdrawal. These withdrawals are tax-free.
For example, if Ms. X starts contributing to an NPS Tier I account at age 38, and by age 43 has contributed Rs. 3,00,000, she can apply for a partial withdrawal. She can withdraw up to Rs. 75,000 for specific needs like treating a critical illness, building a home, or marrying off her children. The remaining corpus must be used to purchase annuities for her monthly pension after retirement. If the subscriber dies before retirement, the entire corpus is paid to the nominee or legal heir without any tax deductions.
Partial Withdrawals under Tier I accounts are allowed only under the following conditions -
Since Tier II accounts are voluntary, there are no restrictions on withdrawals. Investors can withdraw any amount from their Tier II accounts for any purpose, similar to a savings bank account. However, Tier II accounts do not offer the tax benefits that Tier I accounts do.
For example, if Ms. X has contributed Rs. 3,00,000 to her Tier II account, she can withdraw the entire amount without any limits. However, this withdrawal will be subject to taxation.
Given below is the taxability of partial withdrawals -
Tier I Account:
Tier II Account:
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.
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.
Online Process:
Offline Process:
Online Process:
Offline Process:
If you have made a partial withdrawal from your NPS account, you might be eligible for tax deductions subject to certain conditions. In addition to this, there are various other potential tax deductions that you might be eligible to claim. However, understanding everything about them can be complicated. Therefore, it is advisable to consult a tax expert while filing your ITR. Hire an online CA Now!
Six months before the date of retirement, a claim ID will be generated by the CRA. Post generation of the 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.
Partial withdrawals are only possible if all the premiums are paid on time and the policy is in force.
A subscriber can withdraw a maximum of 3 times in their entire tenure from the date of joining till 60 years of age.
Yes, you can do so by logging into the CRA-NSDL website using your PRAN details. Select the withdrawal method that you want to opt for and apply for NPS withdrawal. These requests are first verified by the nodal officer.
