The National Pension System (NPS) has undergone significant changes in its partial withdrawal rules, effective from February 1, 2024. These modifications aim to provide subscribers with increased flexibility while maintaining the core objective of building a robust retirement corpus.
Understanding the Changes:
Eligibility and Limits: Subscribers are now eligible for partial withdrawals after three years from the account opening, limited to 25% of their contributions. Employer contributions and returns on the total corpus are excluded from this calculation.
Example for Clarity: If a subscriber has invested ₹4 lakh in NPS, they can withdraw up to ₹1 lakh (25% of contributions), irrespective of the total corpus.
Permissible Reasons for Withdrawal: The Pension Fund Regulatory and Development Authority (PFRDA) has specified reasons for partial withdrawals, including higher education, marriage, home purchase or construction, medical expenses, skill development, and ventures or startups.
Frequency and Conditions: Subscribers are allowed up to three partial withdrawals during the account tenure, with a mandatory five-year gap between each withdrawal. The gap requirement is waived for withdrawals related to specified illnesses.
Withdrawal Process: Subscribers need to submit a withdrawal request and a self-declaration of the withdrawal purpose to the Central Record-keeping Agency (CRA) through appropriate channels. Family members can submit requests on behalf of subscribers in case of illness.
Tax Implications: Partial withdrawals from the NPS are tax-exempt, providing an additional benefit to subscribers.
To Withdraw or Not to Withdraw:
While the new rules offer increased flexibility, financial experts advise caution. The primary goal of NPS is long-term retirement planning. Unless facing an urgent need or a high-return investment opportunity, maintaining the corpus for compound growth and tax advantages is generally advisable.
Experts recommend:
- Building a separate emergency fund
- Investing in adequate health insurance for unforeseen expenses
- Preserving the NPS corpus for retirement to maximize benefits
