New NPS Partial Withdrawal Rules: How It Works, Limits, and FAQs Answered | India Business News

Feb 7, 2024

New rules for NPS partial withdrawals: There have been changes in the rules governing partial withdrawals from the National Pension System (NPS) from February 2024. These changes bring important considerations for customers. Here's how the new rules work and when it's worth opting out partial withdrawal,
New rules for partial withdrawal from NPS
According to ET report, it is starting from 1st February. nps customer They are allowed to withdraw from their pension account after completion of three years. However, there is a limit to this withdrawal amount, As per the recent circular of Pension Fund Regulatory and Development Authority (PFRDA), customers can withdraw up to 25% of their contributions. It is important to note that withdrawals cannot be made from the portion contributed by the employer or from the returns generated on the contribution.
For example, if you have invested Rs 4 lakh in NPS and your corpus grows to Rs 10 lakh, you are eligible to withdraw only 25% of your contribution, which is Rs 1 lakh. The remaining amount of Rs 10 lakh is not eligible for partial withdrawal.
Due to partial withdrawal
Partial withdrawals from NPS are allowed for various purposes, including:

  • higher education of children
  • Marriage of children (PFRDA clarified that legally adopted children are included in the definition of “children” for marriage clearance)
  • Purchase or construction of first home: Earlier, NPS subscribers could withdraw funds to purchase or construct a home in their own name or with their spouse, without it being their first home. However, now, if they already own a house, they cannot withdraw funds for this purpose, said Nirav Karkera, head of research at Fisdom.
  • For medical purposeWhich includes hospitalization for diseases like cancer, kidney failure, pulmonary arterial hypertension, multiple sclerosis, organ transplant, heart surgery, stroke, heart attacks, coma, blindness, paralysis, serious accidents and COVID-19. And the cost of treatment is included.
  • Medical and incidental expenses due to disability
  • Skill development or self-development activities
  • Establishment of a venture or startup

NPS Partial Withdrawal Limit and Frequency
You can withdraw from your NPS account up to three times during its tenure, with a gap of five years between each withdrawal. However, this rule does not apply if you are withdrawing money for the treatment of a specified illness. PFRDA specifies that for subsequent withdrawals, only contributions made after the previous withdrawal are allowed. According to Karkera, you can withdraw only 25% of the contribution made between two partial withdrawals.
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NPS partial withdrawal process
To request a withdrawal, the NPS subscriber must submit a withdrawal request along with a self-declaration stating the purpose. This should be done through the central record-keeping agency (CRA) through the government nodal office or point of presence. If a customer is unable to submit the form due to illness, a family member can do so on their behalf. Once the withdrawal request is submitted, CRA starts processing it.
tax implications
No tax is applicable on partial withdrawal from NPS. According to Abhishek Kumar, SEBI registered investment advisor (RIA) and founder of SahajaMoney, partial withdrawal is tax-free.
Should you opt for NPS partial withdrawal?
Carcera was quoted as saying that NPS is designed to optimize retirement savings through compound growth and offers tax benefits, making it important for retirement planning. Deciding to withdraw 25% from your NPS account requires careful consideration of your immediate financial needs compared to the long-term goal of ensuring a secure retirement.
While NPS allows withdrawals for major life events like education, marriage, medical emergencies, or buying a home, it is important to remember its main purpose: to provide financial security in retirement. Therefore, unless there is an urgent financial need or a high-return investment opportunity (with acceptable risks), it is generally wise to keep your NPS savings untouched. He adds, this strategy ensures that you benefit from the long-term growth potential of the plan and have a more stable retirement.
Experts suggest a strategy to avoid premature withdrawal from your NPS account: Create a separate emergency fund and get adequate health insurance coverage. Kumar advises that this approach helps prevent the need for partial withdrawals from your NPS savings, which could otherwise impact your retirement corpus.

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