There are certain changes in NPS withdrawal rules. What are the latest NPS withdrawal rules 2018? NPS is now a big additional tax saving investment avenue for many. For this purpose, it is important for all investors to have an eye on such changes.
Before proceeding further, let us look back the basics about NPS.
NPS or New Pension Scheme is a retirement product launched by Government of India. It is managed by PFRDA (Pension Fund Regulatory and Development Authority). This product helps you to create retirement corpus.
Any citizen of India (whether resident or NRI) can invest in this scheme. The age of the subscriber must be within 18-60 years of age. However, an individual of unsound mind or existing members of NPS are not allowed to open new account.
Therefore, an individual can open only ONE NPS account.
How to open NPS Account?
You have to fill the application form and provide the relevant KYC documents at your nearest POP-PS (You will find the list in PFRDA portal).
However, if you want to open new Tier 2 account, then the process is different. You have to approach POP-PS with copy of PRAN (Permanent Retirement Account Number) and Tier 2 activation form.
The subscriber has to make the first contribution while opening the account. The minimum contribution for Tier 1 is Rs.500 and Rs.1, 000 for Tier 2.
Note-Now you can open NPS account online and also contribution can be made it online through eNPS portal. Refer my latest post on the same “eNPS – How open and invest in NPS account online?“.
What are the investment choices?
Asset Class E-Invests predominantly in the equity market. You may say high return and high risk.
Asset Class C-Invests in fixed income instruments other than Government Securities. The risk is medium in this category.
Asset Class G-Invests in Government Securities. So lower risk and lower return.
Along with that, you have two different options to choose regarding allocation.
- Active Choice-You has the option to choose your investment among E, C or G asset classes. However, if you opted for E asset class, then the maximum equity exposure is 50% only.
- Auto Choice-If you don’t want to take an active part in switching asset class, then PFRDA will do it according to your age. It is predefined.
You can change both scheme preference and investment choices at any point of time. But it is allowed only once in a year.
Please remember that there is no ASSURED RETURN from NPS.
Your retirement fund will be managed by fund managers appointed by PFRDA. Currently, there are six fund managers. They are as below.
ICICI Prudential Pension Funds Management Company Limited, Kotak Mahindra Pension Fund Limited, Reliance Capital Pension Fund Limited, SBI Pension Funds Limited, UTI Retirement Solutions Limited, and Annuity Service Provider (ASP).
You can change your fund manager at any point of time. This change is allowed only one time in a year.
Along with that, PFRDA tied with IRDA approved Life Insurance companies to pay the pension once the subscriber reaches 60 years of age. They are as below.
Life Insurance Corporation of India, SBI Life Insurance Co. Ltd., ICICI Prudential Life Insurance Co. Ltd., Bajaj Allianz Life Insurance Co. Ltd., Star Union Dai-ichi Life Insurance Co. Ltd., Reliance Life Insurance Co. Ltd. and HDFC Standard Life Insurance Co. Ltd.
How to exit from NPS?
Once you attain the age of 60 years, you can withdraw up to 60% of accumulation as a lump sum and rest 40% will be converted into a pension.
If you want to exit from NPS before 60 years of age, then you are allowed to withdraw only 20% accumulated amount. You have to buy a pension product with that 80% fund.
However, in case the death of the subscriber, a nominee is allowed to withdraw 100% of NPS.
Refer my earlier post in this regard to know more about NPS.
- NPS Tax Benefits – Sec. 80CCD(1), 80CCD(2) and 80CCD(1B)
- National Pension Scheme (NPS) – 5 Biggest Disadvantages
- NPS Returns for 2018 – Who is best NPS Fund Manager?
- NPS Tier 2 – Alternative to Savings Account, FDs or Debt Mutual Funds?
- Difference between Tier 1 and Tier 2 Account in NPS
Latest NPS Withdrawal Rules 2018
Let us now discuss about the latest NPS withdrawal rules 2018.
# You can withdraw 25% accumulated corpus
You are allowed to withdraw 25% of the accumulated corpus at any time (but excluding contributions made by the employer), as on the date of application of withdrawal. Few points to note are as below.
- The subscriber must be in the National Pension System for at least 3 years.
- The subscriber permitted to withdraw accumulations not exceeding 25% of the contributions made by him and standing to his credit in his individual pension account, as on the date of the application for withdrawal.
- The subscriber allowed to withdraw only a maximum of 3 times during entire tenure of subscription.
- You must submit this withdrawal request in the specified form along with necessary documents to the central record keeping agency or the National Pension System Trust, as may be specified, for processing of such withdrawal claim.
- If subscriber suffering from diseases, then a family member can submit the application.
- For Tier II account, one can withdraw either partial or full amount available in this without any condition.
Purpose of withdrawal
You are not allowed to withdraw the NPS corpus as per your wish. There are certain purposes set by PFRDA. They are as below.
- For higher education of your children including a legally adopted child (or) for self.
- Individual NPS subscribers who wish to set up a new business or acquire a new business will also be allowed to make partial withdrawals from his contributions.
- For the marriage of your children, including a legally adopted child
- You can make a partial withdrawal for the purchase or construction of a residential house or flat in your name or in a joint name of your spouse. In case, you already own a residential house or flat (either individually or in the joint name), other than an ancestral property, no withdrawal under these regulations shall be permitted.
- If you /your spouse, children, including legally adopted child or dependent parents suffer from any specified illness, a partial withdrawal request can be submitted by you or any of your family members. (Specified illness – which shall comprise of hospitalization and treatment in respect of the following disease) :
- 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;
- Myocardial Infarction;
- Total blindness;
- An accident of serious/ life-threatening nature.
- Any other critical illness of a life-threatening nature as stipulated in the circulars, guidelines or notifications issued by the Authority from time to time.
- Such advance withdrawal will not attract any taxation. Hence, there is no tax liability for such advance withdrawal.
# You can hold and contribute to NPS corpus beyond 60 Years also but up to a maximum of 70 Yrs.
If you desire to continue in the NPS and contribute to your retirement account beyond the age of 60 years or the age of superannuation. You will have that option to do so by giving in writing or in such form as may be specified, and up to which you would like to contribute to your individual pension account but not exceeding 70 years of age.
Such option can be exercised at least 15 days prior to the age of attaining 60 years or age or superannuation, as the case may be to the central recordkeeping agency or the National Pension System Trust or any other intermediary or entity authorized by the Authority for the purpose.
If you not exercised the option within the period of 15 days, so stipulated, but desires to continue with his individual pension account under National Pension System, beyond the age of 60 years or the age of superannuation, as the case may be, and to the extent so permitted, may do so by making an application in writing with reasons for such delay to the National Pension System Trust, within 185 days of attaining such age or superannuation.
# State and Central Government Employees NPS corpus may withhold the NPS withdrawal to recover any dues from an employee
If you are an employee of State or Central Government and if there any dues pending by you to be payable to your employer, then your employer may withhold the NPS withdrawal to recover such dues.
However, such authority is available only for Tier 1 accumulated corpus but not for Tier 2 accumulated corpus.
The pension wealth which is payable under the National Pension System will not be paid to the employer until the conclusion of the departmental or judicial proceedings, as the case may be and subject to the final orders, passed in such proceedings.