NPS – Maturity, Partial Withdrawal & Early Exit Rules [updated 2020]

The government wants NPS (National Pension Scheme) to be the preferred investment vehicle for pension planning for majority of its citizens. Unfortunately as it happens with most of Government plans, NPS too has flaws which are holding investors back.

To encourage investment in NPS, PFRDA (Pension Fund Regulatory and Development Authority) which regulates it have made certain changes with regards to early Exit, Interim partial withdrawal and exit on maturity rules through this official notification.

In this post we discuss these rules in details:

For the purpose of rules NPS can be classified in 3 types:

  1. Government sector subscribers – this is NPS accounts for government employees
  2. All citizens, including corporate sector – this is NPS account for salaried employees opened by employers or opened by self
  3. NPS – Lite and Swavalamban subscribers

We focus on the top two NPS types – Government sector subscribers and All citizens, including corporate sector

NPS Exit at Maturity

After retirement (as per service rules) or attaining the age of 60 years you can do the following:

  • Continue to contribute to your NPS up to the age of 70 years (Circular by PFRDA on July 27, 2016)
  • Withdraw the lumpsum amount in 10 annual installments till the age of 70 years. This option can help you save on taxes! [Clarification by PFRDA on October 29, 2015]
  • Defer the purchase of compulsory annuity plan (using minimum 40% corpus) up to 3 years. You will need to inform the concerned authorities at least 15 days in advance for taking this option. If subscriber’s death occurs during this deferred period, then the spouse must buy the annuity.
  • Defer the withdrawal of lump sum amount up to 70 years of age. In this case you have to bear the cost of maintenance of account and other regular charges as applicable.
  • No need to purchase Annuity if the maturity corpus is less than Rs 2 lakhs

The new rules are definitely an improvement above the existing ones but the compulsory annuity is still a problem. The annuity yields in India are still low and do not suit everyone. The good thing is with the new rules subscribers can remain invested in equity for a longer time and would not have to necessarily withdraw/purchase annuity at market lows.

Also Read: Should you Invest Rs 50,000 in NPS to Save Tax u/s 80CCD (1B)?

This also helps people who extend their retirement and are able to invest in NPS.

NPS - Maturity, Partial Withdrawal & Early Exit Rules 2018
NPS – Maturity, Partial Withdrawal & Early Exit Rules 2018

Early Exit Rules for NPS

What if you wanted to exit completely from NPS before maturity? Here are the rules:

With the new rules early exit is possible if you satisfy the following conditions:

  • In case the accumulated amount is more than Rs 1 lakh and there is no annuity available for the subscriber at that age, he has to continue with NPS until he attains such age. Typically insurance companies have minimum age criteria for annuities as 25 to 30 years of age while you can start NPS at the age of 18. So there can be few such cases.
  • In case the accumulated amount is less than Rs 1 lakh, entire amount can be withdrawn without purchasing any annuity.
  • For all amounts above Rs 1 lakh, you still need to buy Annuity for minimum 80% of the corpus while the remaining would be paid as lump sum.

So in all the early exit from NPS has been made more restrictive.

Also Read: Download Tax Planning Guide for FY 2019-20

NPS Partial Withdrawal Rules

Now a subscriber can withdraw partially subject to following conditions:

  • He has been subscriber of NPS for at least 3 years (Changed in Aug 10, 2017 from 10 years to 3 years)
  • The maximum withdrawal limit is 25% of self contribution (i.e. excluding Employer’s contribution) to the NPS
  • You can withdraw partially maximum of 3 times during the entire subscription period
  • There must be minimum 5 years gap between two withdrawals, except in case where the amount is required for treatment of approved illness. (No more a condition)

The purpose of withdrawal can be any of the following:

  • Medical and Incidental expenses in case of disability and incapacitation of the subscriber
  • Children’s higher education or Marriage
  • Construction/ purchase of house in case you do not have one already
  • Treatment of specific critical illness for self, spouse, children or dependent parents
  • Set up or acquire a new business [Circular dated 6 Aug 2018]
  • for skill development/re-skilling or for any other self-development activities [Circular dated 6 Aug 2018]

List of critical illness approved for partial withdrawal:

  • Cancer
  • Kidney Failure (End Stage Renal Failure)
  • Primary Pulmonary Arterial Hypertension
  • Multiple Sclerosis
  • Major Organ Transplant
  • Coronary Artery Bypass Graft
  • Aorta Graft Surgery
  • Heart Valve Surgery
  • Stroke
  • Myocardial Infarction
  • Coma
  • Total blindness
  • Paralysis
  • Accident of serious/ life threatening nature
  • Any other critical illness of a life-threatening nature as stipulated in the circulars, guidelines or notifications issued by the Authority from time to time.

NPS Exit & Withdrawal in case of Permanent Disability

PFRDA has come out with new guidelines about facilitation of easy exit & withdrawal in case of disability and incapacitation of the subscriber converted under national pension system (NPS) on April 13, 2018. Here are the rules:

For Government Sector Subscribers:

If the employer certifies that the subscriber has been discharged from the services on account of invalidation or disability, in such case, exit rules would be same as in the case of withdrawal at maturity.

For other than Government sector subscribers (including individual and corporate sector subscribers, NPS – Lite and Swavalamban)

If subscriber is physically incapacitated or has suffered a bodily disability leading to his incapability to continue with his individual pension account under NPS, the subscriber needs to submit a disability certificate from a Government surgeon or Doctor (treating such disability or invalidation of subscriber) stating the nature and extent of disability.

  1. the affected subscriber shall not be in a position to perform his regular duties and there is a real possibility of the affected subscriber, being not able to work for the remaining period of his life
  2. Percentage of disability is more than 75%

If all the conditions are satisfied the exit rules would be same as in the case of withdrawal at maturity.

Partial Withdrawal is allowed for Medical and Incidental expenses in case of disability and incapacitation of the subscriber

Also Read: Is NPS Good Investment for Senior Citizens?

NPS Payment on Death

On Death, only 20% of the accumulated amount is paid to the nominee or legal heirs while at least 80% of the amount would be used to purchase the  annuity scheme. In case the NPS amount is less than Rs 2 Lakh, the entire corpus as of that date is paid to the nominee or legal heirs.

Some more rules

  1. NPS account cannot be seized or attached by any court on appeal of creditors.
  2. You cannot change or cancel once the annuity has been purchased except during the free look period as specified by insurance company.
  3. There is no portability between Government NPS accounts and other accounts. So in case a government employee quits and joins a private company he would necessarily have to close this account and make early exit.


NPS even after all the above changes should not be the preferred option for retirement planning mainly because of unfavorable tax treatment at maturity and compulsory buying of annuity using substantial corpus. You can accumulate much more and have more flexibility by investing in Equity Mutual Funds, PPF, EPF etc.

24 thoughts on “NPS – Maturity, Partial Withdrawal & Early Exit Rules [updated 2020]”

  1. Sir,
    I am a central Gov employee.I am working for 7yrs.I am a NPS holder.I have following queries given below
    1.What is the VRS rules for NPS holder?
    2.How many years minimum qualification service required for NPS premature withdrawal or VRS without any obstruction?
    3.With VRS or NPS Premature withdrawal am I eligible for leave encashment and gratuity benefits?
    Kindly inform me Sir.

  2. Nakshatra Tripura

    I am serving in a Central University… I have open a NPS Account and total contributed amount as on date Rs.3,90,000.00.. Now I want to withdraw or exit permanently from NPS as it was by mistake open the NPS…

    Previously i.e. before the present job, I was under a pensionable service (GPF) and my previous service i.e. pensionable service can be continuation in my present service… before that i need to exit from NPS account permanently…. Please help me how to exit from NPS Account so that I can go/continue my pensionable service… please help me….

  3. Nakshatra Tripura

    I want to exit or closed my NPS Account Total contributed amount Rs. 3,90,000.00 (Approx) and withdraw completely so that amount may be deposited 50-50 to myself and my employer….as by mistake it was open…

    I was under GPF account i.e. under previous pensionable service and NOW I AM WILLING TO CONTINUATION OF MY PREVIOUS PENSIONABLE SERVICE IN MY PRESENT SERVICE… but before that i need to exit from NPS account… How can I exit from NPS account permanently… Please help me…

  4. I have resigned and have withdrawn the NPS amount of Rs. 47,000 before attaining superannuation, my question is, is this amount taxable?

  5. Mehtiyaz Rahman

    Sir I have resigned from bank after completing 8 years 6 months. Can I withdraw my nps corpus of 20% and purchase annuity. As the bank says I can’t withdraw it before attaining the age of 60 yrs. Please advise

  6. Sir, i have prematurely exited from NPS scheme and got 20% lump sump amount. Is this lump sump amount is taxable or not?

  7. What is the normal age of exit without any early exit penalty, 58 years or 60 years. The same is not specified anywhere.
    I have started NPS at 55 years and now at 58 years 6 months wants to exit. Will it be early exit or normal.

  8. How can you say that one can exit from nps in 8 years. There is definite rule that one can not prematurely exit before completion of 10 years.

    1. Yes you can close NPS account. If you NPS balance is more than Rs 1 Lakh, you need to buy Annuity for minimum 80% of the corpus while the remaining would be paid as lump sum.

      1. Sir you are wrong here, one can not exit from nps before completion of 10 years in service. This fellow has completed only 8 years and you are saying that yes he can exit.. how sir.

  9. i have accumulated amount of Rs.2,80,000 in nps tier I. My age is 51. I came to know there is no use of contributing to NPS. What i have to do. Can I exit from NPS by claiming 20% as lump sum and what about the balance?


    I’ve joined govt service on 02 Dec 2014 and will retire on Aug 2026, on completion of 60 year, as my DOB 06-07-1966.

    What will my minimum monthly PENSION

    1. You cannot calculate the minimum monthly pension as it depends on the contribution and return you have in NPS at the time of retirement.

  11. I have taken NPS for Rs.50,000/- in Jan.2017 and retired on 28.2.2017 after completing 60 years. Now please advice the procedure for withdrawal with time limit.

    Also if I want to continue for some more time when I can with draw the amount.

  12. I have taken NPS for Rs.50,000/- in Jan.2017 and retired on 28.2.2017 after completing 60 years. Now please advice the procedure for withdrawal with time limit and if I want to continue for some more time when I can with draw the amount as per my requirement.

  13. What about Tier II account – what are the provisions pertaining to the same & any changes & or clarifications about the same? eg are the tax benefits on 40% exemption on lumpsum withdrawals, extension by 10 yrs till age of 70 etc applicable to Tier II balances?

    1. You can deposit and withdraw form NPS Tier II anytime you want. Also there are no tax benefit on investment in Tier II account.

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