How to Close Your NPS Account?

Types of NPS Account Closure

Here are the three categories under which the NPS subscribers can get their account closed:

1. Exit at Superannuation (Retirement)
2. Premature Exit (Before Age 60)
3. Exit Due to Death of Subscriber

1. Exit at Superannuation (At Age 60)

This method of closing the account is the most common and standard way to close an NPS account. Given below are the withdrawal rules at retirement when you turn 60:

• When retiring, the subscriber can withdraw up to 60% of the total corpus as a lump sum.
• The subscribers need to use at least 40% of their funds to purchase an annuity from an insurance company.
• The annuity selection ensures pension income after retirement.

Tax Treatment

• There is a 60% lump sum withdrawal that is currently tax exempt due to the prevailing rules.
• Pension income received from an annuity can be taxed according to the income slab.

Option to Defer

The subscribers have the following options to choose from when deferring:

• Deferring the lump sum withdrawal until the member turns 75 years old.
• The member can continue contributing until they turn 75 years old.

2. Premature Exit (Before Age 60)

If the subscriber wants to close their NPS account before they turn 60 years old, there are some conditions. Here are the following conditions in detail:

• The subscribers are allowed to withdraw up to 20% of the corpus as a lump sum.
• Minimum 80% must be used to purchase an annuity. The subscriber needs to use 80% of the corpus to purchase an annuity. This ensures there is retirement income even if the subscriber chooses to close the account earlier.

Small Corpus Exception

If the total NPS corpus at the time of exit is ₹5 lakh or less, the subscriber can withdraw the entire amount as a lump sum without purchasing an annuity, as per current PFRDA regulations. Given below are the tax implications:

• The lump sum portion is taxed according to the prevailing income tax rules.
• The annuity income will stay taxable. The subscriber should be careful when choosing early closure of accounts due to reduced flexibility and retirement corpus accumulation.

3. Closure Due to the Death of the Subscriber

The tax treatment of the corpus in this case is dependent on the regulations maintained by the government when the withdrawal is made. Here is how the account is closed in case of the subscriber's death:

• The accumulated corpus is paid in full to the nominee or the legal heir of the subscriber.
• The nominee can also choose to withdraw the funds as a lump sum.
• The nominee is also allowed to purchase an annuity.

Step-by-Step Process to Close NPS Account Online

The subscribers are required to initiate the exit online via the CRA, or the Central Recordkeeping Agency website. Below is the step-by-step process:

Step 1: Log in to CRA Portal

• The member needs to visit the official CRA website.
• Enter your PRAN and password.
• Complete the OTP authentication.

Step 2: Select "Exit from NPS"

Go to the "exit" or "withdrawal" section under the account services.

Choose:

• Superannuation exit
• Premature exit

Step 3: Enter Withdrawal Details

• Select your lump sum withdrawal amount
• Choose your annuity service provider
• Select an annuity scheme
• Provide your updated bank details

Step 4: Upload Required Documents

Here are the required documents to close the NPS account:

• Identity proof
• Address proof
• Bank proof (cancelled cheque)
• Photograph
• Annuity selection form

Step 5: Submit and Authenticate

• Check your information carefully
• Confirm the submission using OTP
• Submit your request

Step 6: Verification and Processing

• The request is checked and verified by the CRA and the associated nodal office.
• The funds are transferred.
• The annuity process begins with the chosen provider providing annual income to the subscriber.

Offline Process to Close NPS Account

The subscribers are also allowed to close the account through an offline process if they cannot access the online services:

1. Download the exit form from the NPS website or obtain it from your PoP/Nodal office.
2. Fill in the required details.
3. Attach the required documents if they are required.
4. Submit the completed form along with the required documents to the Point of Presence (POP) or the Nodal Office.
5. Wait for the verification to be done.

Documents Required for NPS Closure

Given below are the documents that are required for NPS account closure:

• PRAN card
• ID proof
• Proof of address
• Bank account proof
• A cancelled cheque
• Passport-size photograph
• Annuity application form (if applicable)
• Nominee documents (in case of death claim)

How Long Does NPS Closure Take?

The processing time for the NPS closure is between 10 to 30 days; here are the factors that it depends on:

• Completeness of applied documentation
• Type of exit you are choosing
• Then the verification process
• Annuity provider selection

Annuity Selection Explained

When the subscriber reaches retirement or chooses to exit the subscription prematurely, they are required to purchase an annuity. Here are the options:

• Lifetime annuity
• Joint life annuity
• Annuity with return of purchase price
• Increasing annuity

Important Points Before Closing NPS Account

Here are a few points the subscriber needs to check before closing their NPS account:

• Understand the type of exit you chose
• Consider tax implications
• Understand annuity income limitations
• Compare annuity providers
• Ensure nominee details are updated
• Avoid premature exit unless necessary

Common Reasons for NPS Account Closure

Given below are a few reasons the subscribers close their NPS accounts:

• Retirement
• Migration abroad
• Financial emergency
• Dissatisfaction with returns
• Account consolidation

Tax Considerations During Closure

The tax rates are subject to change as per the current tax provisions. Given below are the tax considerations the subscribers should have before closing their NPS accounts:

At Retirement:

• 60% lump sum withdrawal is completely tax-free (subject to current laws).
• An annuity is taxable.

Premature Exit:

• Up to 20% of the corpus can be withdrawn as a tax-free lump sum, and the 80% must be used to purchase an annuity.
• Income received from the annuity is taxable according to the subscriber's income tax slab.

Can You Reopen NPS After Closure?

After the account is fully closed and all the formalities are carried out, the subscribers need to start the activation process again. PRAN is a unique number, but the rules are dependent on current regulations.

Risks of Premature Closure

Here are the risks of premature closure of an NPS account:

• Decreasing retirement corpus
• A higher percentage of the corpus will be invested in an annuity
• Compounding benefits will be reduced
• Certain potential income may be taxed

Conclusion

There is a detailed approach to closing an NPS account, which requires the subscriber to follow certain procedures and conditions. Withdrawing early provides the subscribers flexibility; earlier exits follow stricter rules and regulations to protect long-term investments. The subscriber needs to check their financial position carefully before closing their account, and check the tax situation. NPS is designed for retirement security, so the complete withdrawal should be made only as a last resort.

The subscribers need to follow the step-by-step process and ensure proper documentation so you can close the account smoothly and transfer your retirement savings appropriately.