NPS Withdrawal Rules India 2026 - Partial Exit, Retirement & Premature Closure

Normal Retirement at Age 60: The Standard Exit

The normal exit from NPS is at age 60 (or superannuation if earlier). The rules are straightforward:

• Maximum lump sum: You can withdraw up to 60% of your accumulated NPS corpus as a lump sum. This 60% is completely tax-free under Section 10(12A) of the Income Tax Act.
• Mandatory annuity: At least 40% of the corpus must be used to purchase an annuity from a PFRDA-registered Annuity Service Provider (ASP). You cannot skip this.
• Exception for small corpus: If your total NPS corpus at retirement is ₹5 lakh or less, you can withdraw the entire amount as a lump sum without being required to purchase an annuity.
• Deferral option: You can defer your NPS account beyond age 60 (up to age 75) and continue building the corpus while remaining in service or post-retirement.

Example: Suppose your NPS corpus at 60 is ₹1 crore. You can withdraw ₹60 lakh tax-free as a lump sum. The remaining ₹40 lakh must be used to purchase an annuity. If the annuity rate is 6%, you will receive ₹2,40,000 per year (₹20,000/month) as pension income - this income is taxable at your slab rate in retirement.

Premature Exit: Leaving NPS Before Age 60

If you need to exit NPS before turning 60 (and you have been a subscriber for at least 5 years), the rules are considerably more restrictive than at retirement:

• Maximum lump sum: Only 20% of your corpus can be withdrawn as a lump sum.
• Mandatory annuity: 80% of the corpus must be used to purchase an annuity - double the annuity requirement compared to normal retirement.
• Minimum service: You must have been a subscriber for at least 5 years before premature exit is allowed. Before 5 years, you cannot exit NPS at all except in case of death or disability.
• Small corpus exception: If the corpus at premature exit is ₹2.5 lakh or less, you can withdraw the entire amount without purchasing an annuity.

The highly restrictive premature exit rules mean NPS is truly designed for long-term retirement savers. If you foresee a need to access funds before 60, you must plan your NPS contributions alongside more liquid assets (PPF partially liquid from year 7, liquid mutual funds, FDs) to meet interim financial needs.

Partial Withdrawal: Accessing Funds During the Accumulation Phase

NPS allows limited partial withdrawals during the accumulation phase (while you are still contributing), subject to strict conditions:

Eligibility: At least 3 years of NPS membership (3 years from the date of joining, not the date of first contribution).

Amount: Up to 25% of your own contributions (not employer contributions, not returns earned). For example, if you have contributed ₹8 lakh of your own money, you can withdraw up to ₹2 lakh (25%).

Permitted purposes:

1. Purchase or construction of a residential house (only if you do not already own a house)
2. Higher education of self or children
3. Marriage of children
4. Treatment of specified critical illnesses (cancer, kidney failure, heart surgery, stroke, etc.) for self, spouse, children, or parents
5. Disability of 75% or more
6. Skill development or entrepreneurship activities

Maximum frequency: A maximum of 3 partial withdrawals over the entire lifetime of the NPS account.

Tax treatment: Partial withdrawals from NPS are tax-free up to 25% of your own contributions.

Death Benefit: What Happens to Your NPS If You Die

In the event of the subscriber's death before retirement:

• The entire NPS corpus (100%) is paid out to the registered nominee or legal heir.
• There is no compulsory annuity requirement for nominees. The full corpus can be taken as a lump sum.
• The death benefit is tax-free in the hands of the nominee.
• If there is no nominee registered, the corpus goes to the legal heirs based on succession law, which can involve probate proceedings and delay.

Action point: Always keep your NPS nomination up to date. You can update nominees online through the eNPS portal or your PoP (Point of Presence). Failing to nominate means your family may face significant procedural delays in accessing the NPS corpus in the event of your death.

Annuity Options at Retirement

The mandatory annuity portion must be purchased from a PFRDA-registered Annuity Service Provider (ASP). As of 2026, registered ASPs include major insurance companies such as LIC, SBI Life, HDFC Life, ICICI Prudential Life, and others.

Common annuity plan types available from ASPs:

The higher the annuity rate, the lower the income per rupee used (reflecting longevity risk priced by the ASP). Annuity rates vary across ASPs and plan types. Shop around by requesting quotes from multiple ASPs before purchasing - you are not obligated to buy from the same company that manages your NPS funds.

Tax Summary: NPS Withdrawals at a Glance

For clarity, here is a consolidated table of tax treatment for various NPS withdrawal scenarios:

• 60% lump sum at retirement: Completely tax-free
• Monthly annuity income: Taxable at slab rate
• 20% lump sum at premature exit: Tax-free
• 80% annuity from premature exit: Annuity income taxable at slab
• Partial withdrawal (up to 25% of own contributions): Tax-free
• Death benefit (100% to nominee): Tax-free in nominee's hands

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