The National Pension Scheme (NPS) is a retirement savings scheme offered by the Government of India, aimed at providing financial security to individuals post-retirement. Upon retirement, subscribers can choose to withdraw their accumulated corpus in different ways. Understanding the withdrawal process is essential to ensure that you make informed decisions about your NPS corpus while receiving optimal benefits.
Once an individual reaches the age of 60, they become eligible to withdraw from their NPS corpus. Below are the steps involved in the NPS withdrawal process:
The subscriber must have attained the age of 60 to fully withdraw from their NPS account.
If a person wishes to continue contributing after 60, they may do so until the age of 70, but withdrawals can still begin at 60.
Partial withdrawals can be made from the NPS corpus in case of certain emergencies like medical treatment, children’s education, marriage, or purchasing a house. However, these withdrawals are subject to specific conditions and limits.
At the time of retirement (after reaching 60 years), you need to submit a withdrawal request to the Pension Fund Regulatory and Development Authority (PFRDA) or your NPS service provider.
The request can be submitted through the e-NPS portal or physically by visiting the nearest Point of Presence (PoP), which is the NPS service provider.
Lump Sum Withdrawal: You can withdraw 60% of the total NPS corpus as a lump sum amount.
Annuity Purchase: The remaining 40% must be used to purchase an annuity plan from a life insurance company. This annuity will provide you with a monthly pension for the rest of your life.
Tax Implication: The lump sum portion is tax-free if withdrawn after 60, but the annuities purchased with the remaining 40% are taxable as regular income.
To complete the withdrawal process, you will need to submit Know Your Customer (KYC) documents, including your PAN card, Aadhaar, and bank account details for the disbursement of funds.
Once the request and documents are submitted, the NPS service provider or PoP will verify the information provided and process your request.
After the approval, the lump sum amount is credited to your bank account (for the 60% withdrawal), and the annuity is provided by the insurance company.
If you do not wish to opt for an annuity, you can withdraw the entire corpus (100%) as a lump sum.
This option is only available if the total corpus is below ₹5 lakh, in which case the subscriber is allowed to withdraw the entire amount without purchasing an annuity.
You must invest 40% of the corpus in the form of an annuity, which will give you a fixed monthly pension.
You can choose from various annuity plans offered by insurance companies, with options for joint annuity (with your spouse) and life annuity.
Lump sum withdrawal of the 60% of the corpus is tax-free.
However, the annuities purchased with the remaining 40% are subject to tax according to your income tax slab.
The tax-free status is only applicable when the individual is above 60 years of age. If withdrawal is made before the age of 60, both the lump sum and annuity portions are taxed.
If you choose to continue contributing to your NPS account after the age of 60, you can do so until the age of 70. The corpus can only be accessed after reaching the age of 70.
You can also choose to delay your annuity purchase and make a partial withdrawal.
An annuity provides a regular income stream, but you can select the annuity plan based on your preferences:
Mr. Rao, aged 60, has accumulated ₹10 lakh in his NPS corpus. Upon retirement, he decides to withdraw 60% (₹6 lakh) as a lump sum amount, which is tax-free. He then uses the remaining ₹4 lakh to purchase an annuity plan from a life insurance company, providing him with a monthly pension of ₹5,000. His lump sum withdrawal is credited to his bank account, and his pension will continue for the rest of his life.
Withdrawing from NPS after retirement is a straightforward process, involving decisions regarding lump sum withdrawal and annuity purchase. By following the steps, individuals can ensure that they receive a tax-efficient and secure retirement income. It is essential to plan ahead and choose an annuity option that best suits your financial goals for a comfortable post-retirement life.
Answer By Law4u Team
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