We live in a world that constantly adapts to make our lives more comfortable. The National Pension System (NPS) has also changed over the years to make life easier for us. Since introducing the NPS in 2003, the Pension Fund Regulatory and Development Authority (PFRDA) has introduced numerous changes to meet the population’s growing needs. In 2009, the National Pension System became available to the public, helping several young Indians secure their retirement. Today, the NPS allows withdrawals and early exits, giving you the financial freedom you need to deal with emergencies. If you already have an NPS account, here’s your complete guide to making an NPS withdrawal.
Understanding NPS Withdrawal Options
NPS Partial Withdrawals
Certain events, such as a medical emergency or your child’s higher education aspirations, can stretch your finances. Thankfully, you don’t have to worry if you have an NPS Tier 1 account. You can make partial withdrawals from the amount you have invested in these situations. The NPS allows partial withdrawals only for the following reasons:
- Higher education for yourself or your children
- Your child’s marriage
- Purchase of a plot or apartment registered in your name or held jointly with your spouse
- Payment towards treatment received in case you, your spouse, your child, or dependent parents get diagnosed with a specified critical illness
Withdrawal Rules
To avoid your withdrawal request getting rejected, you must ensure you meet the following conditions:
- You have invested in the NPS Tier 1 account for at least three years.
- You do not intend to withdraw more than 25% of the contributed amount.
As per the PFRDA guidelines, you can make up to three NPS withdrawals from the time you start investing until the account reaches maturity. You must also maintain a gap of at least five years between subsequent withdrawals.
NPS Premature Withdrawals
Today’s young workers aim to retire by 40 and 50, and the NPS is on board with their requirements. The NPS allows withdrawals before you reach 60, as long as you have invested in the NPS for five years. You can withdraw the entire amount tax-free if the accumulated corpus is less than Rs. 2.5 lakh. If the accumulated amount is higher, you can withdraw only 20% tax-free. You must use the remaining 80% to purchase an annuity.
NPS Withdrawal on Maturity
Every NPS subscriber can withdraw up to 60% of the accumulated amount when they turn 60. The withdrawal amount does not attract taxes. You must use the remaining 40% to purchase an annuity. You can withdraw the entire amount tax-free without buying an annuity if the corpus is Rs. 5 lakhs or less. If you still intend to work, you can defer the withdrawal date until you turn 70 and continue to invest for a higher corpus.
Investing in the NPS helps you plan for retirement, but it’s only half the battle. For true financial stability, you must understand how withdrawals work as well. Understanding these rules enables you to enjoy financial freedom once you retire.
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