New Delhi: National Pension System (NPS) is a defined contribution based pension scheme, which aims to provide regular income/pension after retirement. There is a perception among investors that NPS is mainly a retirement product and partial withdrawals cannot be done before retirement. It may be noted that partial withdrawal benefit is also available in NPS under certain circumstances.
NPS offers two types of accounts — Tier-I and Tier-II. While the Tier I account is mandatory and offers tax benefits, the Tier II account is optional and does not offer any tax benefit on investment. While there are no restrictions on partial withdrawal from Tier II account, some restrictions apply to partial withdrawal from the Tier I account.
Here are 10 things you need to know about partial withdrawal from NPS Tier I account
1) A subscriber can go for partial withdrawal from his NPS Tier I account after completion of three years of subscription.
2) One can do a maximum of three partial withdrawals during his entire tenure of subscription under NPS.
3) Subscribers are allowed to withdraw maximum 25% of their own contributions as on the date of application for partial withdrawal. This partial withdrawal amount is exempt from tax.
4) Partial withdrawals are allowed for specific purposes like higher education of children, self, marriage of children, purchase/construction of house and treatment of critical illness.
5) Partial withdrawal request can be submitted either online or offline. However partial withdrawal requests need to be verified and authorized by the associated Point of Presence (POP) corner.
6) In case of superannuation, a subscriber can withdraw 100% of the corpus accumulated in his NPS Tier I account if the amount is less than or equal to Rs 2 lakh. If the corpus at the time of superannuation is more than Rs 2 lakh, then the subscriber has to use at least 40% of the accumulated corpus to purchase an annuity.
7) A subscriber can also opt for pre-mature exit from NPS after completion of 10 years. In case of a pre-mature exit, at least 80 per cent of the accumulated corpus has to be utilised for purchase of an annuity. If the total corpus is less than Rs 1 lakh, then the subscriber can withdraw 100% of the corpus.
8) But in case of death of the subscriber, the entire accumulated corpus would be paid to the nominee/legal heir of the subscriber.
9) A subscriber can check the status of his withdrawal request online through the CRA website.
10) The withdrawal proceeds are credited in the subscriber’s bank account (as per the bank details provided at the time of initiating online withdrawal request) through electronic mode only.