PensionBox Blogs
All you need to know about Withdrawal in NPS
Remy Sharp
Pranat Modi
September 30, 2022

The Government of India established the National Pension Scheme (NPS) to provide citizens with a secure future after retirement. It is usually observed that participation in a scheme is frequently easier than exiting a scheme. That's not the case with the National Pension Plan, which offers various withdrawal choices.

NPS Withdrawals

Subscribers may withdraw only up to 25% of their significant contribution, but only three times during their plan. To qualify for partial withdrawal, the subscriber must participate in the plan for about 3 years. Further, partial withdrawals are permitted only for children's education, wedding expenses, house construction, or emergencies.

NPS tier 1 account and their withdrawals

Tier-1 account is a non-withdrawal permanent retirement account in which the subscribers' contributions are invested and credited according to the fund manager or the plan subscribed to. Tax-free withdrawals are limited to up to INR 1L, and above that, only 20% of those funds can be withdrawn (taxes apply). Remaining 80% of the funds must be invested in annuities.

NPS tier 2 account and their withdrawals

Another voluntary withdrawable account is the NPS tier-2 account which is available only to those who already have a tier-1 account under their names. Withdrawal in this account works as per the convenience of the subscriber. Tier-2 accounts have unlimited withdrawal effects, just like any other savings account. In contrast, withdrawing money from NPS can be time-consuming due to the limited number of Points of Presence where withdrawal requests can be made. There is also no online portal, which adds to the length of the process.

Tax on NPS withdrawals

When the NPS account matures, one might withdraw 60% of the sum, which is completely tax-free. The remaining 40% of the contribution can be used to purchase annuities, which again is tax-free.

NPS Withdrawal due to the User’s Death

According to the PFRDA (Exits and Withdrawals under NPS) Regulations 2015 and provisions thereto, in the event of the User's death, the entire access to adequate wealth of the User (100 percent NPS Corpus) paid to the Nominees or Family members, as the case may be. However, the deceased User's Nomination Heir shall have the option to buy any of the annuities of been offered upon exit, while trying to apply for withdrawal of benefits from the deceased Subscriber's Permanent Retirement Account. If the nominee/legal heir wishes to choose an annuity (pension), they must select an Annuity Service Provider (ASP) and annuity Scheme on the Death Withdrawal Form.

How much time does it take to process a withdrawal request ?

In most cases, the funds are credited to one's bank account within 24 hours of the request if the invitations are submitted well before the cut-off time. Your bank account will not be credited with the funds for 48 hours if your request is submitted after the deadline.

Documents required from Nominee in case of death withdrawal request

Following are the documents required to submit in case of death withdrawal request.

  1. Organised Death Withdrawal Form
  2. Death certificate
  3. KYC Files (identity & address proof)
  4. Account Bank details, and other documents.
  5. All People of India Sector, under "Forms," contains a list of additional documents to be submitted.

Process to be followed by Nominee

Nominees and claimants must submit the death withdrawal form, along with any supporting documents, from the subscriber's related Point of Presence (POP). POP processes the death withdrawal requests through the CRA system online, and after the process, funds are transferred to the nominee/claimant within the timeframes specified. In addition, the selected annuity by the heir, and Respondent's information is shared with the Annuity Service Provider (ASP) to complete the prior formalities.

How will PensionBox help ?

The financial health of your workforce boosts morale and output at work. With PensionBox, your employees can more effectively plan their retirement, keep track of all of their private pensions, including EPF, PPF, and NPS, in one location, and get prospective. Still the Withdrawing NPS feature is not yet available but soon it's going to be active.

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