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NPS Tier-I Withdrawal: How and when can withdrawals be made from this pension scheme

Amitava Chakrabarty
National Pension System, NPS, New Pension Scheme, NPS Tier-I Withdrawal rules, NPS contribution, NPS partial withdrawals, NPS commutation, retirment corpus, monthly pension, pension plans, life insurance annuity plans

The National Pension System or NPS (earlier New Pension Scheme) was introduced with the aim of providing pension to government employees who joined their services after December 31, 2003. So, NPS is basically a retirement product and matures when an employee retires at the age of 60 years.

There are two types of accounts under NPS. While Tier-I Account is a mandatory one and is used to develop retirement corpus, Tier-II Account is optional and there is no restriction on withdrawals.

The scheme was made available for the common public between 18 and 60 years of age from May 2009 and subsequently, tax deductions up to Rs 50,000 were allowed on voluntary contributions made to Tier-I Accounts.

At the time of retirement at the age of 60, a subscriber has to invest within three years minimum 40 per cent of the retirement corpus in an annuity plan of a IRDAI-regulated insurance company to get regular pension. The remaining 60 per cent of retirement corpus may be commuted tax free immediately or may be deferred till the age of 70 years.

If an employee retires before the age of 60 years, he/she has to invest 80 per cent of the retirement corpus in an annuity plan.

However, more liquidity has now been infused into NPS by allowing partial withdrawals from Tier-I Accounts. Now, up to three partial withdrawals of maximum 25 per cent each of the subscriber s contributions made on or after August 10, 2017 are allowed out of the mandatory NPS Tier-I account after three years from making the contribution. However, subscribers are not allowed to withdraw the contributions made by the employer during the subscription period.

Moreover, withdrawals from the Tier-I account may only be made for reasons like
(1) higher education of children;
(2) marriage of children;
(3) for the purchase/construction of residential house;
(4) for treatment of critical illnesses;
(5) to meet medical and incidental expenses arising out of the disability;
(6) for Skill development and
(7) for establishment of own venture or any start-up.