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:
We focus on the top two NPS types – Government sector subscribers and All citizens, including corporate sector
After retirement (as per service rules) or attaining the age of 60 years you can do the following:
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.
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:
So in all the early exit from NPS has been made more restrictive.
Also Read: Download Tax Planning Guide for FY 2019-20
Now a subscriber can withdraw partially subject to following conditions:
The purpose of withdrawal can be any of the following:
List of critical illness approved for partial withdrawal:
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.
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?
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.
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.
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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?
Yes you can exit NPS. You'll get 20% as lumpsum and have to buy annuity for rest.
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
You cannot calculate the minimum monthly pension as it depends on the contribution and return you have in NPS at the time of retirement.
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.
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.
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?
You can deposit and withdraw form NPS Tier II anytime you want. Also there are no tax benefit on investment in Tier II account.