Annuity in NPS is a mandatory pension mechanism requiring subscribers to utilise at least 40 per cent of their maturity corpus to purchase a lifelong income stream. Offered by registered Annuity Service Providers, these products provide predictable monthly payouts, ensuring retirees maintain financial independence, cover living expenses, and hedge against inflation throughout their retirement years.
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Annuity in NPS is an arrangement where a subscriber uses a portion of the retirement corpus
to purchase a pension plan from an empanelled insurance company. In exchange, the insurer provides the
insured person with a guaranteed annuity payment, which is fixed in periodic payments, monthly, quarterly,
or annually, depending upon the type of annuity scheme opted for.
The subscriber deposits the total corpus with an insurer at the time of retirement, and the
insurer agrees to pay the fixed income for a specific period of time or for the subscriber's lifetime.
The amount of the pension is based on five elements:
Corpus built up at the time of retirement
Proportionate corpus used for buying an annuity
Subscriber's age at the time of annuity buy-back
Type of annuity purchased
Annuity interest rates of the insurer of choice
Annuity schemes under the NPS are offered solely by life insurers regulated by the Insurance
Regulatory and Development Authority of India (IRDAI).
The Annuity Purchase Process in NPS
The annuity process follows a defined sequence at the time of retirement exit.
The subscriber reaches retirement age or completes 15 years of NPS subscription, whichever comes first.
A portion of the corpus, up to 60% for government employees and up to 80% for non-government
subscribers, is withdrawn as a lump sum.
The remaining corpus is used to purchase an annuity plan in NPS from a PFRDA-empanelled insurer.
The subscriber selects an annuity option based on income needs, family requirements, and risk appetite.
The insurer begins paying pension income as per the chosen payout frequency
The NPS annuity interest rate is locked in at the time of purchase. It remains constant
irrespective of changes in market conditions or alterations made by the insurer in their policies. The
predictability of the annuity payments is an important advantage offered by the annuity.
The Minimum Annuity Threshold is one of the key regulatory conditions for withdrawing funds
from the NPS scheme. It provides for a minimum amount to be kept as an annuity instead of withdrawing it in
a lump sum.
According to the latest amendment regulations (2025) made by PFRDA under Exit and Withdrawals
under NPS regulations, the minimum annuity requirement for subscribers other than government subscribers has
now changed from 40% to 20%.
The table below summarises the current withdrawal and annuity requirements as of May 2026:
Exit Scenario
Lump Sum Allowed
Minimum Annuity Required
Normal exit: corpus up to ₹8 lakh
100%
Nil
Normal exit: corpus above ₹8 lakh and up to ₹12 lakh
Up to ₹6 lakh or as per SUR/SLW
Balance via annuity or SUR
Normal exit: corpus above ₹12 lakh (non-government)
Up to 80%
Minimum 20%
Normal exit: government employees
Up to 60%
Minimum 40%
Premature exit before 60: corpus above ₹8 lakh
Up to 20%
Minimum 80%
Disclaimer: These rules are as per PFRDA Amendment Regulations 2025 and are subject to
revision. Government subscriber rules continue to be governed by separate service regulations.
Annuity Plan Options in NPS: Which Structure to Choose
Each annuity plan in NPS offers a different pension structure, nominee benefit, and payout
level. The choice is irreversible once made, making it one of the most consequential retirement decisions
for a subscriber.
Life Annuity: Pension is provided until the death of the subscriber. Payment will cease upon the
subscriber's death. The cost paid for purchasing the pension will not be refunded to the nominees. The
highest monthly pension under this type is provided since no corpus is maintained for refund.
Joint Life Annuity: The pension will continue even after the subscriber's death to their wife/spouse.
Generally, this annuity pays 50% or 100% of the pension amount to the subscriber's spouse as per the
variant opted for.
Annuity With Return of Purchase Price: The entire amount paid for purchasing the annuity is refunded to
the nominees after the subscriber dies. The monthly pension under this scheme it will be less compared
to others since the company maintains the capital. This suits those subscribers who wish to leave some
inheritance.
Increasing Annuity: Pension income increases every year by a predetermined percentage, usually 3% per
annum. Pension helps cope with rising inflation. However, starting a pension will provide lower initial
payments compared to other annuities, as it gradually increases every year.
Certain Period Annuity: Pension payments are assured for certain periods of 5, 10, 15, or 20 years,
irrespective of whether the subscriber is alive. If the subscriber passes away during the certain
period, pension payments will continue to the nominee until the period ends. After a certain period, the
pension continues until the subscriber's passing.
What Determines Your NPS Annuity Income
Understanding what is annuity rate in NPS is and what determines it helps in making a more
informed selection at retirement.
Age at purchase: Older subscribers receive a higher NPS annuity interest rate because the expected
payout period is shorter. A subscriber purchasing an annuity at 65 will receive a higher monthly pension
than one purchasing at 60 for the same corpus amount.
Life annuity opted for: Higher monthly payments come with life annuity options. A return on the purchase
amount or spousal cover lowers monthly payments as insurance companies make provisions for the same.
Amount invested in annuity: The amount invested in buying an annuity results in higher monthly pension
income. A minimum investment of 20% in non-government subscribers leads to lower monthly pensions when
compared to a voluntary contribution of 40% or above.
NPS annuity interest rate prevalent: Current annuity interest rates among various insurance firms range
from 5.5% to 7.5%, depending on the firm, type of annuity, and the individual's age as of 2025-26. These
rates depend on government bond returns and pricing models adopted by insurance firms. A comparison
among insurance firms prior to investing is desirable.
Pricing scheme of insurers: Pricing schemes of various insurance firms empanelled by PFRDA differ.
Government bond yields and insurer pricing models influence rates. Comparing rates across empanelled
insurers before purchase is advisable.
Insurer pricing structure: Different PFRDA-empanelled insurers offer different annuity rates for
identical options. The difference can range from 0.5% to 1.5% per annum. Over a 20 to 25-year
retirement, this difference has a meaningful impact on cumulative pension income.
PFRDA-Empanelled Annuity Service Providers in NPS
Subscribers can purchase an annuity plan in NPS only from insurers empanelled by the Pension
Fund Regulatory and Development Authority (PFRDA). All empanelled providers are regulated by IRDAI. As of
May 2026, major annuity service providers include:
Life Insurance Corporation of India
SBI Life Insurance
ICICI Prudential Life Insurance
HDFC Life Insurance
Star Union Dai-ichi Life Insurance
Bajaj Allianz Life Insurance
How Annuity Income in NPS Is Taxed
Tax treatment is a key aspect of planning annuity in NPS. The table below summarises the
general tax treatment as of May 2026:
Component
Tax Treatment
Lump sum withdrawal up to 60% at retirement
Tax-free under Section 10(12A) of the Income Tax Act, 1961
Amount used for annuity purchase
Tax-exempt at the time of purchase
Pension income received from an annuity
Taxable as income at the subscriber's applicable slab rate
Premature exit withdrawals
Partially taxable as per applicable rules
Disclaimer: Tax regulations shall be based on the Income Tax Act 1961 as amended from time to
time up to May 2026. For further clarification, subscribers should seek the advice of their tax
professionals.
Lump sum withdrawals will be tax-free, provided the amount withdrawn does not exceed 60%.
Pension payments received under an annuity will be taxed as part of the annual income of the subscriber.
There is no separate tax exemption on annuity income received post-retirement.
NPS Corpus and Annuity in NPS: Key Differences
Subscribers sometimes use these terms interchangeably. They refer to two distinct concepts.
Basis
NPS Corpus
Annuity in NPS
Meaning
Total accumulated retirement savings in the NPS account
Pension product purchased from an insurer using a portion of the corpus
Nature
Market-linked: returns depend on fund performance
Fixed income: payout determined at the time of purchase
Liquidity
Partial withdrawal permitted during accumulation, subject to rules
Generally illiquid after purchase
Returns
Variable: based on asset allocation and market performance
Fixed: based on the NPS annuity interest rate locked in at purchase
Taxation
Partial tax exemption available at retirement
Pension income is taxable at applicable income tax slab
December 2025 PFRDA Update: What Changed in NPS Annuity Rules
The PFRDA Amendment Regulations, December 2025, introduced the most significant changes to
NPS withdrawal and annuity rules in several years.
The following changes will be applicable from December 2025:
Compulsory annuity for non-Government subscribers decreased from 40% to 20% of the corpus, provided that
there should be at least 15 years of subscription or subscriber should have reached age 60, whichever is
sooner
Withdrawing the entire corpus in lump sum is possible for a corpus of up to ₹8 lakh without the need to
purchase an annuity
Limit on the maximum age at which one can continue to be invested in NPS increased from 75 years to 85
years
Systematic Lump-sum Withdrawal (SLW) launched as an option to annuity for qualified subscribers
Assets managed by NPS exceeded ₹16.5 lakh crore with 2.2 crore subscribers as on February 2026.
Total assets of NPS under management reached ₹16.5 lakh crore and the total subscriber base
was at 2.2 crore as on February 2026, indicating growth in adoption of the scheme.
Annuity in NPS involves turning years of accumulated savings for the retirement period into
an organised source of income. The amendment brought about by the PFRDA in December 2025 allows withdrawals
by reducing the mandatory annuity to 20% of the corpus. Withdrawals in the form of lump sum are possible if
the corpus is not more than ₹ 8 lakh.
Choosing the correct annuity scheme in the NPS requires consideration of three key points:
How much corpus is allocated, choosing the best annuity scheme based on the income of the subscriber and
protecting their family, and selecting the best insurance company that offers the highest NPS annuity
interest rate.
Withdrawals from the annuity account are taxed according to the applicable slab rate. Making
early preparations towards retirement and analysing the different annuity providers will ensure maximum
income after retirement from the annuity in the NPS.
FAQs
Q. Can I defer annuity purchase after retiring from NPS?
Yes, non-government subscribers can defer both lump sum withdrawal and annuity purchase until the age of 85 by submitting a request to the NPS Trust or an authorised intermediary. The corpus continues to remain invested during the deferral period, allowing further accumulation before the annuity is purchased.
Q. What if the NPS annuity purchase was not made by the time of the subscriber’s death?
The mandatory purchase of an annuity, in case the subscriber with a deferred annuity dies before making such purchases, will have to be done compulsorily by the nominee. The corpus, after the deduction of the mandatory annuity purchase, will have to be paid to the nominee in a single lump sum payment.
Q. Can one apply for Form 15H to avoid TDS on NPS annuity income?
Yes. Any senior citizen over 60 years of age with annual income below the basic exemption limit may file Form 15H with the annuity service provider in each new fiscal year. Filing Form 15H does not deduct TDS; it only ensures that no TDS is deducted at the time of annuity distribution.
Q. Is there any minimum corpus required for annuity purchase in NPS?
There is no set minimum corpus purchase for annuity in NPS. Annuity amount depends on the proportion of the corpus used at exit. If the total corpus is up to ₹8 lakh, then subscribers do not need to make any annuity purchases, and the complete corpus can be withdrawn in a lump sum.
Q. What is Systematic Lump-sum Withdrawal (SLW) and how is it different from annuity in NPS?
Systematic Lump-sum Withdrawal (SLW) is an alternative to annuity introduced under the PFRDA 2025 amendments. Under SLW, the corpus remains invested in NPS and the subscriber receives periodic withdrawals, monthly, quarterly, or annually, rather than transferring the amount to an insurance company. Unlike an annuity, SLW does not guarantee lifelong income and the corpus is subject to market performance until fully withdrawn.
Q. What would be the consequence of the empanelled insurance company’s bankruptcy on the NPS annuity scheme?
NPS annuity service providers are governed by IRDAI and have to keep the statutory margin of solvency as per the provisions made in the Insurance Act. In case of bankruptcy, rules have been laid down under IRDAI that ensure the safety of policies in terms of the settlement process. It is recommended to go for annuity plans provided by insurers having high solvency margins and a good record for claims settlement, which is published each year by IRDAI.
Q. Is there any provision to extend NPS annuity payout to children in case both the subscriber and spouse die?
In a joint life annuity scheme with return of purchase price, the initial investment sum gets back to the nominee, who can be the children of the subscriber, upon their death. NPS standard life annuity schemes and joint life annuity schemes without return of purchase price cannot pass on benefits in the form of monthly payouts to the children of the subscriber. Only the initial investment sum comes back.
31 Aug 2026 
