What are the latest regulations for withdrawal from the national pension system?

Formerly, the Pension Fund Regulatory and Development Authority (PFRDA) simplified the process for participants to withdraw money from the National Pension System (NPS). The complete corpus can be withdrawn as a lump sum by an NPS membership if it does not exceed Rs. 5 lakh, per the regulations. The income tax regulations governing these lump sum withdrawals are uncertain, nonetheless.

Regulations for the National Pension System

What’s new about the National Pension Scheme? 

The Government of India provides a retirement program called the National Pension Scheme. The plan is governed by the Pension Fund Regulatory and Development Authority (PFRDA). It is a voluntary pension plan that includes both pension benefits and investment opportunities. Any Indian citizen between the ages of 18 and 65 may engage in NPS. The entry-level investment into a NPS is INR 500. Nevertheless, there is currently no upper limit on the total sum that might be invested in NPS programs. NPS members are mandated to contribute at least once per fiscal year.

Also ReadPension schemes offered by the Government of India

The Pension Fund Regulatory and Development Authority (PFRDA) has modified the guidelines for NPS withdrawal upon maturity to allow individuals to withdraw 100% of the corpus in a lump sum if the corpus valuation is Rs. 5 lakh or less. Moreover, the new provision enabling 100% withdrawals when the corpus is lower than Rs. 5 lakh has yet to be backed by an equivalent tax provision.

NPS funds come in two varieties: Tier I and Tier II. One must create a Tier-I account before being able to participate in the NPS. A Tier-I account holder's optional add-on savings account with variable rules is called Tier-II. Withdrawals from Tier-II funds are subject to specific restrictions. Additionally, unless the contributor is an employee of the central government, there is no tax incentive on the contributions received for this fund. A central government worker can only utilize Provision 80C to withdraw up to Rs. 1,50,000 in deposits to Tier-II accounts after terminating a 3-year lock-in phase.

Therefore, only special circumstances authorize a partial withdrawal from such a Tier-I fund. Such as,

A Tier-I deposit may only be partially withdrawn under the following conditions:

  • Higher education for one's child
  • Children's marriages
  • Owning or building a home or apartment in the individual's name or jointly with one's spouse
  • The treatment of particular disorders
  • Establishing a brand-new business or start-up
  • covering expenditures for activities aimed at strengthening one's skills, retraining, or developing oneself
  • A max of three withdrawals are granted over the entire term, first from the date of membership until the age of 60.
  • Three years must also have elapsed since the individual's initial enrollment in the National Pension System.
  • 25% of one's total contributions may also be withdrawn in total. Only a maximum of 25% of the portion of payments may be withdrawn if their boss has also made significant contributions to the NPS account.

Eligibility criteria for the National Pension Scheme

In comparison to other pension plans, the NPS allows both Indian citizens and NRIs (non-resident Indians) to participate. Nevertheless, the individual needs to be between the ages of 18 and 60 at the time they join. In addition, participants will have to provide their relevant KYC records with the subscription application forms (CS-S1 and CS-S2).

Also read4 ways to get most out of a pension scheme

Final words

The PFRDA recently announced that 100% of the NPS corpus may be withdrawn upon maturity if the valuation is Rs. 5 lakh or less. Only the first 60% of the corpus value is exempt from income tax, though. As a result, the balance 40% will be considered as taxable income at the appropriate slab rates for you for the fiscal year 2023–2024. Additionally, it will be provided to the client or their spouse as a consistent income after retirement.


Related Article

Premium Articles

Union Budget