The government wants NPS (National Pension Scheme) to be the preferred investment vehicle for pension planning for majority of its citizens. Unfortunately as it happens with most of Government plans, NPS too has flaws which are holding investors back.
To encourage investment in NPS, PFRDA (Pension Fund Regulatory and Development Authority) which regulates it have made certain changes with regards to early Exit, Interim partial withdrawal and exit on maturity rules through this official notification.
In this post we discuss these rules in details:
For the purpose of rules NPS can be classified in 3 types:
We focus on the top two NPS types – Government sector subscribers and All citizens, including corporate sector
After retirement (as per service rules) or attaining the age of 60 years you can do the following:
The new rules are definitely an improvement above the existing ones but the compulsory annuity is still a problem. The annuity yields in India are still low and do not suit everyone. The good thing is with the new rules subscribers can remain invested in equity for a longer time and would not have to necessarily withdraw/purchase annuity at market lows.
Also Read: Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?
This also helps people who extend their retirement and are able to invest in NPS.
What if you wanted to exit completely from NPS before maturity? Here are the rules:
With the new rules early exit is possible if you satisfy the following conditions:
So in all the early exit from NPS has been made more restrictive.
Also Read: Download Tax Planning Guide for FY 2019-20
Now a subscriber can withdraw partially subject to following conditions:
The purpose of withdrawal can be any of the following:
List of critical illness approved for partial withdrawal:
PFRDA has come out with new guidelines about facilitation of easy exit & withdrawal in case of disability and incapacitation of the subscriber converted under national pension system (NPS) on April 13, 2018. Here are the rules:
For Government Sector Subscribers:
If the employer certifies that the subscriber has been discharged from the services on account of invalidation or disability, in such case, exit rules would be same as in the case of withdrawal at maturity.
For other than Government sector subscribers (including individual and corporate sector subscribers, NPS – Lite and Swavalamban)
If subscriber is physically incapacitated or has suffered a bodily disability leading to his incapability to continue with his individual pension account under NPS, the subscriber needs to submit a disability certificate from a Government surgeon or Doctor (treating such disability or invalidation of subscriber) stating the nature and extent of disability.
If all the conditions are satisfied the exit rules would be same as in the case of withdrawal at maturity.
Partial Withdrawal is allowed for Medical and Incidental expenses in case of disability and incapacitation of the subscriber
Also Read: Is NPS Good Investment for Senior Citizens?
On Death, only 20% of the accumulated amount is paid to the nominee or legal heirs while at least 80% of the amount would be used to purchase the annuity scheme. In case the NPS amount is less than Rs 2 Lakh, the entire corpus as of that date is paid to the nominee or legal heirs.
NPS even after all the above changes should not be the preferred option for retirement planning mainly because of unfavorable tax treatment at maturity and compulsory buying of annuity using substantial corpus. You can accumulate much more and have more flexibility by investing in Equity Mutual Funds, PPF, EPF etc.
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View Comments
Sir,
I am a central Gov employee.I am working for 7yrs.I am a NPS holder.I have following queries given below
1.What is the VRS rules for NPS holder?
2.How many years minimum qualification service required for NPS premature withdrawal or VRS without any obstruction?
3.With VRS or NPS Premature withdrawal am I eligible for leave encashment and gratuity benefits?
Kindly inform me Sir.
When will return annuity purchased amount.
I am serving in a Central University... I have open a NPS Account and total contributed amount as on date Rs.3,90,000.00.. Now I want to withdraw or exit permanently from NPS as it was by mistake open the NPS...
Previously i.e. before the present job, I was under a pensionable service (GPF) and my previous service i.e. pensionable service can be continuation in my present service... before that i need to exit from NPS account permanently.... Please help me how to exit from NPS Account so that I can go/continue my pensionable service... please help me....
I want to exit or closed my NPS Account Total contributed amount Rs. 3,90,000.00 (Approx) and withdraw completely so that amount may be deposited 50-50 to myself and my employer....as by mistake it was open...
I was under GPF account i.e. under previous pensionable service and NOW I AM WILLING TO CONTINUATION OF MY PREVIOUS PENSIONABLE SERVICE IN MY PRESENT SERVICE... but before that i need to exit from NPS account... How can I exit from NPS account permanently... Please help me...
I have resigned and have withdrawn the NPS amount of Rs. 47,000 before attaining superannuation, my question is, is this amount taxable?
Sir I have resigned from bank after completing 8 years 6 months. Can I withdraw my nps corpus of 20% and purchase annuity. As the bank says I can't withdraw it before attaining the age of 60 yrs. Please advise
NPS rules says you can
Sir, i have prematurely exited from NPS scheme and got 20% lump sump amount. Is this lump sump amount is taxable or not?
its tax fee
What is the normal age of exit without any early exit penalty, 58 years or 60 years. The same is not specified anywhere.
I have started NPS at 55 years and now at 58 years 6 months wants to exit. Will it be early exit or normal.
How can you say that one can exit from nps in 8 years. There is definite rule that one can not prematurely exit before completion of 10 years.
I want premature exit from NPS, has completed 8 years in the scheme. Whether it can be done???
I stand corrected you cannot exit NPS until you complete 10 years of investment.
Yes you can close NPS account. If you NPS balance is more than Rs 1 Lakh, you need to buy Annuity for minimum 80% of the corpus while the remaining would be paid as lump sum.
Sir you are wrong here, one can not exit from nps before completion of 10 years in service. This fellow has completed only 8 years and you are saying that yes he can exit.. how sir.
Yes you are right. Thanks for correcting me