NPS Withdrawal Rules Set To Change From February 1; All You Need To Know

At a time when most taxpayers are in the last minute tax saving rush, India's pension sector regulator PFRDA has introduced some changes in the withdrawal rules of NPS, which is among the popular tax saving investment options. The new NPS withdrawal rules come into effect from February 1st 2024.

NPS Withdrawal Rules Change From February 1

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The PFRDA (Pension Fund Regulatory and Development Authority) has modified rules enabling NPS investors to withdraw partial amounts from their pension wealth in the National Pension System (NPS).

PFRDA has issued a master circular this month to facilitate partial withdrawals and guarantee compliance with legislation. As per the pension regulator's Master Circular, w.e.f 1 February 2024, NPS withdrawal rules will stand changed, with the following rules kicking in from next month:

Purpose Of Partial Withdrawal

NPS investors (or subscribers) can withdraw up to 25% of their individual pension account contributions (excluding employer contributions) upon filing the withdrawal form.

Partial withdrawals are allowed for the following purposes only:

(a). Higher education of children (including a legally adopted child).

(b). Marriage of children (including a legally adopted child).

(c). Purchase or construction of a residential house or flat in town name or in joint name with legally wedded spouse. However, if the subscriber already owns a residential house or flat (other than ancestral property), no withdrawal shall be permitted.

(d). Treatment of specified illnesses, including hospitalization and treatment expenses for diseases such as 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, accidents of serious/life-threatening nature and Covid-19.

(e). Medical and incidental expenses arising from the disability or incapacitation suffered.

(f). Expenses incurred for skill development/re-skilling or any other self-development activities.

(g). Expenses incurred for the establishment of her/his own venture or any start-ups.

Also Read: NPS Is The Only Tax Saving Investment Option Available To Both Old & New Tax Regimes

Eligibility Criteria For NPS Partial Withdrawal

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As per PFRDA's circular, to be eligible for NPS partial withdrawal, the subscriber must fulfill the following criteria:

(a) It is required that the subscriber has been a part of the NPS for a minimum of three years from the date of enrollment.

(b) The partial withdrawal amount cannot exceed 25% of the subscriber's total contributions in their individual pension account as of the date of the withdrawal application (excluding the employer's contribution). Partial withdrawal of the returns derived from the contributions is not permitted.

(c) Under NPS, asubscriber's total number of partial withdrawals during the subscription period is three. For subsequent partial withdrawals, the subscriber's incremental contributions from the date of the previous partial withdrawal will be the only ones accepted.

Also Read: PPF vs Bank Tax Saver FD-Which One To Choose For Tax Saving?

How To Submit NPS Withdrawal Request

Firstly, subscribers shall, through their Government Nodal Office or Point of Presence, as applicable, submit a withdrawal request and self-declaration to the central recordkeeping agency. A subscriber's family member may request a withdrawal if the subscriber has one of the conditions specified in this master circular's paragraph 6(d).

Then, the Point of Presence or Government Nodal Office will designate the recipient upon receiving a withdrawal request. Following a successful verification of the subscriber's bank account through "Instant Bank Account Verification" techniques like penny drop or other technological advancements, CRA will process partial withdrawal requests.

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