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Rules, taxation, how to apply for NPS partial withdrawal detailed here

Pension Fund Regulatory and Development Authority (PFRDA) has made many changes in National Pension System (NPS) rules to make it an attractive retirement savings instrument.
Partial withdrawal from NPS was not allowed earlier but now it is possible because of recent rule changes. Also, NPS partial withdrawal process has become simpler now.  However, there are certain preconditions for making partial withdrawals from NPS.

Preconditions for NPS partial withdrawal

Partial withdrawal from NPS account is allowed after completion of three years. Also, there is a limit to how much can be withdrawn. A subscriber can withdraw up to 25% of his/her own contributions. Suppose you have invested Rs 2 lakh in your account in five years, but the corpus has grown to Rs 3.5 lakh. Then as per rules, a subscriber can only withdraw 25% of his own contributions, which is Rs 2 lakh in this case. So the maximum amount that the subscriber can withdraw, in this case, is Rs 50,000.  

Partial withdrawals are allowed for treatment of life-threatening diseases, for marriage or higher education of children, for purchase/construction of a property, or to start a new venture.

Further, a subscriber is allowed to make maximum three partial withdrawals during the overall tenure and a gap of five years must be there between two withdrawals. However, the 5-year gap condition does not apply in case the withdrawal is being made for the treatment of specified illness.

How to withdraw

Earlier, for partial withdrawal from NPS, the subscriber used to go to a nodal office or point of presence and was required to submit documents substantiating the reasons for partial withdrawal. But now he can do it online by logging on to eNPS website and by merely making a self-declaration. The withdrawal request will be processed and the amount will be deposited in the subscriber's bank account within five days.

Tax treatment of NPS partial withdrawal

Partial withdrawal from NPS is tax-exempt but the taxation will be different if a subscriber exits his NPS account prematurely (before 60 years of age). In case of premature exit from NPS, a subscriber will be allowed to withdraw up to 20% of the corpus as a lump sum and the remaining 80% will have to be used to purchase an annuity.

In such a case, the lump-sum withdrawal amount will be tax-exempt, but the annuity income will be taxed as per the tax slab of the individual. But there is an exception. If the accumulated corpus is less than Rs 1 lakh, the entire amount is paid as a lump sum to the subscriber.



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