Premature closure of NPS Account/ Withdraw money from NPS account before maturity

An individual can withdraw its NPS investments prematurely and after maturity, but only under certain rules. However, there's a third option, too, which is partial withdrawal from NPS. The three types of NPS withdrawals have been described below. Do bear in mind there are specific NPS withdrawal limits for each type of exit from scheme or system. Following are some key facts about the NPS withdrawal process. 

NPS Withdrawal Limit for Tier 2 Account

Under existing rules of the National Pension System, on NPS Tier 2 withdrawals there are no restrictions. The rules of NPS withdrawal and withdrawal limits currently are applicable only to NPS Tier 1 withdrawals. Although it might seem to be a favourable idea of investing more in Tier 2 NPS account instead of Tier 1 account, however. Do note that optional NPS Tier 2 investments do not feature tax benefits under Section 80C or any of its subsections.

NPS Withdrawal Limit for Tier 1 Account

In contrast to NPS Tier 2 account, the NPS Tier 1 account features various rules on the withdrawal limits. The withdrawal limits for the NPS are defined by the type of withdrawals made and on the amount withdrawn from the NPS Tier 1 account. Following are the key withdrawal rules for withdrawals before maturity, partial withdrawal and withdrawals after maturity.  

1. NPS Withdrawal Rules for Premature Withdrawal

After the subscriber turns 60 years old, NPS Tier 1 account matures. For NPS Tier 1, withdrawal before maturity can only be made after three years from the date of opening the NPS account. This type of NPS withdrawal is termed as “premature exit”. The individual is only allowed to withdraw 20% of its corpus at the time of premature exist. The remaining 80% is used to buy an annuity. The tax applies to both, the 20% withdrawal and the annuity.

2. NPS Withdrawal Rules for Partial Withdrawal

Partial withdrawals from the NPS corpus can be made only for specified purposes. Under the existing NPS withdrawal rules, the maximum amount that one can withdraw is up to 25% of the total contribution (not calculated on the total NPS account balance). However, to avail the NPS partial withdrawal benefits, the individual has to be an NPS account subscriber for at least ten years at the time of withdrawal. During the entire tenure of the NPS account, partial withdrawals can only be made up to three times. These partial withdrawals are tax-free.

Partial NPS contribution withdrawals can be requested for the following:

1. Higher education of children
2. Marriage of children
3. For the purchase/construction of a residential house/flat either in the individual's name or jointly with its spouse. However, if the individual already owns or jointly owns a house or flat other than ancestral property, this will not be permitted.
4. For treating any of the illnesses mentioned below. The patient can be the subscriber, its spouse, children or dependent parents:
5. Cancer
6. Preliminary Pulmonary Arterial Hypertension
7. Multiple Sclerosis
8. Kidney Failure
9. Major Organ Transplant
10. Coronary Artery Bypass Graft
11. Aorta Graft Surgery
12. Heart Valve Surgery
13. Stroke
14. Myocardial Infarction
15. Coma
16. Total Blindness
17. Paralysis
18. Accident of serious/life-threatening nature
19. Critical illness of a life-threatening nature specified by the PFRDA from time to time

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