NPS Premature Pension Withdrawal

The Central Government’s social security program, the NPS (National Pension System) Premature Pension Withdrawal, aims to safeguard retired people’s financial security. The primary goal of NPS is to accumulate a retirement fund from a fixed, negligible portion of your monthly income. Subject to the governing rules, you may withdraw the corpus when it matures when you turn 60. If you want to make early withdrawals from the NPS, you must follow a different set of guidelines. In order to learn more, let’s investigate the plan in greater detail.

NPS Premature Withdrawal

With effect from January 1, 2004 (with the exception of the armed forces), the Central Government implemented the National Pension System (NPS). All Indian citizens now have access to NPS as of May 1, 2009. Protean eGov Technologies Limited has been named as the Central Recordkeeping Agency (CRA) for the National Pension System by the Pension Fund Regulatory and Development Authority (PFRDA), the organization in charge of NPS regulation.

For all NPS subscribers, CRA will perform the duties of record-keeping, administration, and customer service in a first-of-its-kind venture in India. Each subscriber will receive a Permanent Retirement Account Number (PRAN), and the CRA is required to keep a database of all permanent retirement accounts as well as record transactions involving each PRAN.

An important step toward creating a viable and effective voluntary defined contribution pension system in India is the establishment of the National Pension System (NPS), which is governed by the PFRDA. Its broad goals are as follows:

  • Provide a Retirement Income
  • Long-Term, Reasonable market-based returns
  • Providing all citizens with access to old age security

Understanding the National Pension Scheme (NPS)

NPS is generally divided into two categories and further customized for various industries, as follows:

Government Sector:

  1. Central Government: Except for the armed forces, the National Pension System (NPS) was implemented by the Central Government on January 1, 2004. The government sector of NPS is also required to cover all Central Autonomous Bodies employees who began working on or after the aforementioned date. Employees of the Central Government/CABs make monthly pension contributions and the employer also makes a matching contribution.

  2. State Government: Following the Central Government, numerous state governments adopted this architecture and put NPS into place with varying start dates. If the concerned State Government/UT has adopted the NPS architecture and begun implementation of the same, a State Autonomous Body (SAB) may also adopt NPS. State government employees and SABs also make monthly pension contributions, and the employer also makes a matching contribution.

Private Sector (Non-Government Sector):

  1. Corporates: The NPS Premature Pension Withdrawal Corporate Sector Model is a tailored version of NPS that can be used by different organizations and their employees to adopt NPS as an organized entity under the umbrella of their employer-employee relationship.

  2. All Indian citizens: From May 1, 2009, anyone who is not covered by any of the aforementioned sectors may join the NPS architecture under the All Citizens of India sector.

The following applies to conditional withdrawal:

  1. The customer should have been an NPS Premature Pension Withdrawal member for at least three years.

  2. The amount of the withdrawal cannot be more than 25% of the subscriber’s contributions.

  3. Over the course of the subscription period, withdrawals are permitted a maximum of three times.

  4. Only the reasons listed are permissible for withdrawal, for instance;

    1. Children’s higher education

    1. A child’s marriage

    2. To purchase or build a residential home (under certain restrictions)

    3. For the purpose of treating critical illnesses

Maturity Withdrawal Rules – Government Sector Employees

Before turning 60 or reaching retirement age, if their corpus is equal to or less than ₹. 2.5 lakh, NPS subscribers who enrolled between the ages of 18 and 60 are eligible to take a lump-sum distribution. For government sector subscribers, a lump sum settlement on premature exit will be applicable if the account corpus or investment is equal to or less than ₹.2.5 lakh.

Voluntary Exit Withdrawal Rules – Government Sector Employees

  • An annuity should be used to invest at least 80% of the total.
  • An individual has the option to withdraw the total amount if the accumulated pension is less than ₹. 2.5 lakh.

Death-Related Withdrawal Rules – Government Sector Employees

If a subscriber passes away before reaching retirement age, their nominee or legal heir receives the full amount.

Maturity Withdrawal Rule – Corporate Sector and Citizens

  • With the option to withdraw the remaining funds in a lump sum, a person should invest at least 40% of the amount in annuities.
  • Until a subscriber turns 70 years old, the lump sum withdrawal can be delayed.
  • An individual has the option to withdraw the total amount if the accumulated pension is less than or equal to ₹. 5 lakh.

Voluntary Exit Withdrawal Rules – Corporate Sector and Citizens

  • A person must have kept up with their account for at least ten years.
  • You should buy annuities with 80% of the money.
  • An individual may decide to withdraw the entire amount if the accumulated NPS Premature Withdrawal pension is less than or equal to ₹. 2.5 lakh.

    Death-Related Withdrawal Rules – Corporate Sector and Citizens
  • When a subscriber passes away, the nominee has the option to take the accumulated money as a lump sum and start receiving NPS death benefits.

NPS Premature Withdrawal Rules

  • During the term of his or her subscription, a subscriber may only cancel three times
  • Only 25% of a subscriber’s contributions to this program may be withdrawn
  • To be qualified for a partial withdrawal, a subscriber must have participated in this plan for at least three years.
  • Only certain exceptional circumstances, such as the education of his or her children, wedding costs, building a home, or medical emergencies, permit partial withdrawal.

NPS Partial Withdrawal Rules

NPS Tier I – Less than or equal to ₹. 1 lakh of lump-sum withdrawals were made without paying any taxes.

In excess of ₹. 1 lakh Up to 20% of the total amount subject to income tax may be withdrawn, but annuities must be purchased with 80% of the contribution.

NPS Tier II –  Those who invest in a Tier-II account are able to make as many withdrawals as they want. The NPS account then behaves like any other savings account. But with NPS, cash withdrawals can be a laborious process because there aren’t many Points of Presence where customers can submit withdrawal requests. The absence of an online portal for NPS Premature Withdrawal adds to the length of the process.

Partial Withdrawal Timelines

A withdrawal can also only be made after three years have passed. The maximum number of partial withdrawals is 3, with a 5-year interval between each one.

For instance, suppose you made a three-year deposit of ₹. 5,000 each month. You are allowed to withdraw up to 25%, or ₹. 1.5 lakhs, of your total balance after three years. You won’t be permitted to make another partial withdrawal for another 5 years.

Partial Withdrawal Amount Limits

Partial withdrawals from the NPS were previously prohibited, but following rule changes, contributors are now permitted to withdraw up to 25% of their savings. Only the principal amount is eligible for the partial withdrawal. It is not possible to withdraw interest from the account. Because of this, only 25% of the money contributed to the NPS account can be withdrawn, not the entire balance.

Partial Withdrawal Conditions

The following listed emergencies permit partial withdrawals:

  • The higher education of a child
  • Marriage of a child
  • Treatment for a Serious Illness of the Self, Spouse, Children, or Dependent Parents
  • Purchase or construction of a first home (not applicable if the subscriber is already a sole or joint owner of a residential house or apartment, excluding ancestral property)
  • Accidental Deaths

NPS Withdrawal Process

Offline Process

Obtain your application for a Permanent Retirement Account Number (PRAN).

The PRAN application form can be obtained by subscribers between the ages of 18 and 65 from any Point of Presence – Service Provider (POP-SP) you wish to register with.

You must make sure that your PRAN application form is completed, including the photo, signature, mandatory information, scheme preference information, etc. You must also submit the KYC documentation, which includes your identity and address proofs. Refer to the offer document provided by the Pension Fund Regulatory and Development Authority (PFRDA) for more information in-depth about NPS.

Send the PRAN application form to the POP-SP (Point Of Presence – Service Provider) that is most convenient for you.

To submit the PRAN application and the KYC documents, visit the nearby POP-SP. CRA will mail your correspondence address a PRAN card.

Keep an eye on your PRAN submission

When you submit your PRAN application, POP-SP will give you a receipt number. by using National Pension System Portal The following . You can do this by entering the receipt number to see the status of your PRAN application.

Send in your first contribution slip.

When you apply to register with any POP-SP, you must make your initial contribution (a minimum of Rs 500). In order to do this, you must submit an NCIS (Instruction Slip) containing information about the payment made to your PRAN account.

Online process

PAN-based registration with the bank or non-bank POP KYC checks

  1.  Permanent Account Number’ (PAN) is a requirement.
  2. Bank/Demat/Folio account information with the authorized Bank/Non-Bank for the KYC verification process for eNPS subscriber registration
  3. The Bank/Non-Bank POP you chose to register with will carry out your KYC verification. In order to verify KYC, the name and address provided during registration must match POP records. The request could be denied if the details don’t line up. The applicant is asked to contact the POP in the event that the chosen POP rejects their KYC.
  4. You must complete all required fields in the online form.
  5. You must upload a scanned copy of your PAN card and a canceled check in the *.jpeg/*.jpg/*.png file type with a file size of between 4KB and 2MB.
  6. You must upload your scanned photo and signature in the *.jpeg, *.jpg, or *.png format with a file size of 4KB to 5MB.

  7. You will be taken to a payment gateway so you can use Internet Banking to make the payment to your NPS account.

  8. On a T+2 basis, contributions are credited in PRANs (pending receipt of clear funds from the Payment Gateway Service Provider).

In Conclusion

The Ministry of Finance of the Government of India is responsible for the Pension Fund Regulatory and Development Authority, which includes the National Pension System Trust as a specialized division. In India, a defined contribution pension system that is voluntary is known as the National Pension System.


 What are the tax implications of NPS’s premature Pension withdrawal?

According to the 2017 Budget, a subscriber’s contribution that is withdrawn prior to retirement or superannuation is tax-exempt up to 25% of the time.

How Do I End My NPS Account?

Online or offline closure of an NPS account is possible. Let’s first go into more detail about how to terminate an NPS account online:

  • Step 1: Enter the CRA system with your login information to start an exit request.
  • Step 2: The website shows messages confirming your OTP authentication and approving your request. You should designate this portion of the corpus for annuity/lump sum, nomination information, etc.
  • Step 3: Upload scanned copies of your KYC documentation.
  • Step 4: Verify the procedure by providing an OTP that was generated on your registered contact number and email address.

When does the pension commence in the case of premature exit from NPS?

When a subscriber or superannuating subscriber turns 60 years old, the CRA generates an Exit ID, which is a Claim ID. When the subscriber turns 60 years old or six months before their retirement date, the Claim ID is generated. The subscriber receives the generated Claim ID via email, SMS, and letter.

In the following circumstances, subscribers may only partially cancel their subscriptions:

  • Children’s higher education
  • Treatment for serious illnesses for oneself, dependents, a spouse, or children
  • Fatal incidents
  • The building or acquisition of the first home (Take note that this exclusion does not apply to subscribers who are the sole or joint owners of a home or apartment, excluding ancestors’ property.)
  • Marriage of a child

What documents do you require for exit from NPS, whether premature or superannuation?

  1. The list of required documents is provided below:
  2. Documents necessary for KYC
  3. If you are qualified for a full withdrawal, you must fill out the “Request Cum Undertaking” form.
  4. Canceled check containing the IFSC code, account number, and name of the account holder. If the bank passbook includes the account holder’s photo, IFSC code, and name, a copy of the passbook may be submitted. The account holder must self-attest to the copy.
  5. It is necessary to submit the stamped receipt in advance. The account holder must fill out and cross-sign the receipt on the revenue stamp.

After receiving the aforementioned documents, POP will approve the withdrawal request.

Do you pay any charges for deferring withdrawals from the NPS account beyond your retirement at 60?

Yes, you will incur additional costs, such as CRA and PRAN maintenance, if you choose to postpone your NPS withdrawal after reaching the retirement age of 60.