NPS Withdrawal Rules

NPS withdrawal rules: At age of 60, 60% is tax-exempt lump sum; 40% mandates annuity. Partial withdrawals allowed for defined needs after 3 years.
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NPS Withdrawal
OPEN FD
3 min
09 September 2025

The National Pension System (NPS) is one of the most trusted government-backed retirement savings plans in India. While it encourages long-term wealth creation, it also gives you the flexibility of partial and premature withdrawals for life’s emergencies.

But here’s a thought: while NPS builds your pension corpus, pairing it with safe options like Fixed Deposits (FDs) can balance your portfolio. With FDs, you get assured returns and flexible tenures—a strong backup for your financial future.

NPS withdrawal rules

NPS withdrawals vary depending on whether you use the mandatory Tier 1 account or the optional Tier 2 account, and whether the withdrawal is at retirement, premature, or partial.

1. Partial premature withdrawal

You can withdraw up to 25% of your contributions after a minimum lock-in of 3 years, but only for specific reasons like:

  • Higher education of children

  • Marriage expenses

  • Treatment of critical illness

  • Purchase or construction of a house

You can make up to three such withdrawals in your lifetime, with at least a 5-year gap between them.

For emergencies that don’t qualify under NPS rules, you can rely on a Bajaj Finance FD. With the option of loans against FDs, you don’t need to break your investment and can still access quick funds. Open FD.

2. Withdrawal at retirement

  • At age 60, at least 40% of your corpus must be used to purchase an annuity (monthly pension).

  • The remaining 60% can be withdrawn as a lump sum.

  • If your total corpus is Rs. 5 lakh or less, you can withdraw the entire amount.

If you want steady income alongside NPS annuities, open a Bajaj Finance FD with periodic interest payouts (monthly, quarterly, half-yearly or yearly). It ensures consistent cash flow in retirement. Check latest rates.

3. Withdrawal due to premature exit

  • Premature exit is allowed after 5 years.

  • At least 80% of the corpus must go into an annuity.

  • Remaining 20% can be withdrawn as a lump sum.

  • If corpus ≤ Rs. 2.5 lakh, you can withdraw the full amount.

For short to medium-term goals, FDs provide a risk-free growth option with flexible tenures ranging from 12 to 60 months. Open an FD account and start earning up to 7.30% p.a. returns with Bajaj Finance FDs.

4. Death of the Subscriber

  • For private sector employees: Legal heirs or nominees can withdraw 100% of the corpus.

  • For government employees:

    • If corpus ≤ Rs. 5 lakh: Full withdrawal is allowed.

    • If corpus > Rs. 5 lakh: 80% must go to annuity; the rest can be withdrawn as a lump sum.

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NPS withdrawal rules for corporate employees

At retirement

  • At least 40% of corpus > annuity purchase.

  • Remaining 60% > lump sum withdrawal or reinvestment.

  • Lump sum is tax-free up to 40%; the rest is taxable.

Early retirement

  • Full withdrawal allowed if corpus ≤ Rs. 2.5 lakh.

  • If larger, 80% must be annuitized, and 20% can be withdrawn.

To avoid depending only on annuity payouts, consider FD ladders with Bajaj Finance, staggered investments across multiple tenures so your funds mature at regular intervals. Open FDs.

Fixed Deposit

  1. Trusted by over 5 lakh customers
  2. Fixed Deposits worth more than Rs. 50,000 crore booked
  3. Rated CRISIL AAA/STABLE and [ICRA]AAA(STABLE)
  4. Up to 0.35% p.a. extra interest offered for senior citizens
  5. Flexible interest payout options available - Monthly, Quarterly, Half-yearly, Annually or at Maturity

By proceeding, you agree to our Terms and Conditions

NPS withdrawal rules for Government employees

  • Corpus ≤ Rs. 5 lakh > Full withdrawal allowed.

  • Corpus > Rs. 5 lakh > 80% annuitized, 20% lump sum.

  • If no dependent family, wealth is distributed to children or other legal heirs.

What is the process for withdrawal from NPS?

1. NPS Tier 1 withdrawals

NPS Tier 1 accounts allow for easy online withdrawal request submissions. We have outlined the NPS online withdrawal process below:

Step 1: Visit the NSDL-CRA website
Step 2: Log in using your user ID (PRAN) and password
Step 3: Go to the ‘Transact Online’ tab and select the ‘Withdrawal’ option
Step 4: Select the ‘Partial Withdrawal from Tier 1’ option
Step 5: Enter the withdrawal reason and the specific percentage of funds you wish to withdraw
Step 6: Click on ‘Submit’

(Note: The steps outlined above pertain to partial withdrawals. Steps vary for superannuation and premature exits)

Upon successful submission, the system will generate a form. You have to submit this form along with the following documents to the nodal office:

  • PRAN Card

  • KYC documents

  • Bank account verification documents like passbook or cancelled cheque with details like account holder’s name, account number, IFSC, etc.

  • Advance stamp receipt that is cross-signed on the revenue stamp by the NPS account holder

  • Request-cum-undertaking form if the request pertains to maturity withdrawals

For offline NPS withdrawals, you can download the necessary form and fill in the relevant details. The duly filled form, along with the supporting documents mentioned above, must be submitted at the nearest Point of Presence Service Provider (PoP/PoP-SP).

2. NPS Tier 2 withdrawals

To withdraw funds from an NPS Tier 2 account, you need to submit a duly filled form UOS-S12 and other supporting documents to the nodal office or PoP-SP. Once the request is registered, the amount will be dispersed in 3 days.

Also read: NPS Tier 2

NPS withdrawal limit for Tier 2 account

There are no limits on NPS Tier 2 account withdrawals since Tier 2 accounts are voluntary. In other words, subscribers can withdraw funds from a Tier 2 account as and when required to meet their needs. Tier 2 accounts function like savings accounts, allowing restriction-free withdrawals. While NPS withdrawal rules do not apply to Tier 2 accounts, you should note that voluntary Tier 2 investments are exempt from all the tax benefits under Section 80(C).

NPS withdrawal limit for Tier 1 account

As opposed to Tier 2 withdrawals, withdrawals from NPS Tier 1 accounts are subject to various rules and limits. As a subscriber, you are permitted to make partial and complete withdrawals only under certain conditions. Moreover, NPS Tier 1 withdrawals place a cap on the amount that can be withdrawn and the minimum lock-in period.

Pro tip

Bajaj Finance offers attractive Fixed Deposit interest rates of up to 6.95% p.a. for non-senior citizens, and up to 7.30% p.a. for senior citizens, inclusive of an additional rate benefit of up to 0.35% p.a.

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Tax implications on NPS

  • Section 80CCD(1): Up to Rs. 1.5 lakh (under 80CCE).

  • Section 80CCD(1B): Additional Rs. 50,000 deduction.

  • Section 80CCD(2): Employer contribution up to 10% of salary + DA.

Partial withdrawals under Section 10(12B) are tax-free. However, annuity income is taxable as per your slab.

For tax-efficient and market-independent growth, Bajaj Finance FD offers assured interest rates—immune to market ups and downs. Check interest rates.

 

Conclusion

The National Pension System (NPS) is a well-structured plan to secure your retirement with annuities and lump-sum withdrawals. But with restrictions on premature and partial exits, it is important to combine it with flexible, low-risk investments.

A Bajaj Finance Fixed Deposit can complement your NPS corpus by offering up to 7.30% p.a. assured returns, liquidity through premature withdrawal or loans, and flexible tenures. Together, they create a well-rounded retirement plan—stable, flexible, and stress-free. Open FD account.

 

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Frequently asked questions

Can I withdraw my NPS amount?

Yes. NPS Tier 1 accounts allow partial withdrawals of up to 25% after 3 years of investment for specific purposes.

Can I exit from NPS after 3 years?

Yes. Normal exit after 3 years is permitted. However, 40% of the corpus has to be used to purchase annuity, the rest may be withdrawn as a lump sum. 100% withdrawal is allowed if the corpus is less than or equal to Rs. 5 lakh.

Can I withdraw money from NPS if I quit my job?

NPS allows partial withdrawals only for specific reasons like critical illness, children’s marriage, higher education, etc. Job loss is not a valid reason for partial withdrawal. You can, however, make a premature exit from the NPS investment.

Is NPS withdrawal taxable?

Up to 60% of the total corpus withdrawn as a lump sum is tax-exempt. For instance, if the corpus at the time of exit is Rs. 10 lakhs, you can withdraw Rs. 6 lakhs (60% of the corpus) without incurring any tax. If you choose to withdraw 60% of the NPS corpus as a lump sum and use the remaining 40% to buy an annuity, no tax is due on the lump sum withdrawal. However, the annuity income received in future years will be taxable according to the applicable income tax slabs.

What is the new rule for NPS withdrawal?

Starting February 1, 2024, under the latest National Pension System regulations, members can withdraw up to 25% of their individual contributions to their accounts, provided that at least three years have passed since the account was opened.

Can I withdraw 100% from NPS?

Yes, you can make a full withdrawal from your NPS account if your total corpus is Rs. 5 lakh or less. In such cases, the entire amount can be withdrawn as a lump sum. However, if your corpus exceeds Rs. 5 lakh, you must use at least 40% of it to purchase an annuity, while the remaining 60% can be withdrawn as a lump sum.

Can I withdraw money from the National Pension Scheme after retirement?

Yes, NPS allows phased withdrawals after retirement. You can choose to withdraw the lump sum amount in instalments—up to 10 instalments—between the age of 60 and 75 (or as per the retirement age defined by your employer). This helps in better retirement income planning.

Can I withdraw from my NPS Tier I account before retirement?

Yes, partial withdrawals from a Tier I account are allowed, but only after completing 3 years under the scheme. You can withdraw up to 25% of your individual or voluntary contributions for specific purposes such as medical treatment, education, or purchasing a home.

Is NPS Tier 2 withdrawal flexible?

Absolutely. NPS Tier 2 offers complete flexibility, allowing you to withdraw funds at any time. However, government employees investing in Tier 2 for tax benefits under Section 80C must observe a 3-year lock-in period.

Is withdrawal from NPS Tier 2 taxable?

Yes, withdrawals from an NPS Tier 2 account are treated as part of your total income and taxed according to your applicable income tax slab. Also, unlike Tier 1, funds cannot be transferred from a Tier 2 account, but transfers to Tier 1 or from EPF to Tier 1 are allowed.

Is NPS better than FDs?

NPS builds long-term pension wealth, while FDs provide assured short- and medium-term returns. A mix of both ensures stability and growth.

With Bajaj Finance FDs you can earn up to 7.30% p.a. returns. Book now!

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