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NPS Withdrawal Rule Change: Withdraw Full Contributions Without Annuity; Know Details

NPS investors can make a partial withdrawal a maximum of three times during the entire tenure of subscription

NPS investors can make a partial withdrawal a maximum of three times during the entire tenure of subscription

NPS Withdrawal Rules Change: The increased threshold of Rs 5 lakh will offer better liquidity to a certain segment subscribers amid the second wave of the coronavirus pandemic

National Pension System (NPS) subscribers can now withdraw the full contributions at one go without purchasing annuity if the pension corpus is equal to or less than Rs 5 lakh. “…where the accumulated pension wealth in the Permanent Retirement Account of the subscriber is equal to or less than a sum of Rs 5 lakh, or a limit as specified by the Authority, the subscriber shall have the option to withdraw the entire accumulated pension wealth without purchasing annuity and upon such exercise of this option, the right of such subscriber to receive any pension or other amount under the National Pension System or from the government or employer, shall extinguish," it said.

At present, beneficiaries can withdraw up to Rs 2 lakh from their NPS account. Beyond this limit, the pensioners can withdraw 60% of the contributions. At least 40% of the contributions has to be mandatorily parked in government approved annuities, according to the current rule.

The government-run investment scheme offers the subscribers the option to set the preferred allocation to different asset classes. There are two kinds of NPS accounts — Tier 1 and Tier 2. While the Tier 1 NPS account is strictly a pension account, the Tier 2 account is an investment account. At present, the returns of annuities average around 5.5%. With inflation and income tax on pension accumulation, the return for subscribers from annuities are often on the lower side.

The increased threshold of Rs 5 lakh will offer better liquidity to a certain segment subscribers amid the second wave of the coronavirus pandemic. “The new rules will allow them to invest these funds elsewhere where they can earn better returns. Depending on their risk profile they will invest in the option that suits them the most," said Nitin Shahi, executive director of Findoc, financial services group.

The pension regulator also stated that the premature withdrawal limit on a lumpsum basis for NPS has been increased to Rs 2.5 lakh from Rs 1 lakh.

The regulator also increased the maximum age of entry into the National Pension System (NPS) from 65 to 70. The exit age limit has also been extended to 75 years.

The NPS subsrciber can now choose benefits either from the old pension scheme or accumulated pension corpus under NPS in the event of their death during service.

NPS withdrawal rule

The NPS subscribers are allowed to withdraw their money from the account once they complete three years under some specified circumstances. However, for premature withdrawal, the amount can not exceed 25 per cent of contributions made by the NPS subscribers. The investors can withdraw partially for higher education of children, the marriage of children, for the purchase/construction of the residential house (in specified conditions) and for treatment of critical illnesses. NPS investors can make a partial withdrawal a maximum of three times during the entire tenure of subscription. It must be noted that these withdrawals are tax-free under Income Tax laws.

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first published:June 16, 2021, 09:01 IST