NPS Withdrawal: All You Need to Know- 2026

Understanding NPS Withdrawal Rules

NPS Withdrawal is the facility of withdrawing or gaining access to the amount that is attached to a tier I NPS account. NPS is basically a means for funding one's retirement benefits. Therefore, the NPS withdrawal online login is regulated with a policy that is aimed at ensuring it meets two objectives: liquidity access at times of need and sufficient income for the post-retirement phase.

Withdrawals in NPS are dependent on three elements:

• Age at exit
• Total corpus accumulated
• Type of withdrawal requested
• Minimum subscription period completed

The Two Buckets: Tier I vs. Tier II

First, you must decide which pool you're targeting.

1. Tier I Account: NPS Withdrawal form Tier 1 is mandatory for subscribers who voluntarily enrol in NPS. The redemption therein is governed by rigid PFRDA norms.
2. Tier-II Account: This is a voluntary savings space. You can withdraw from here anytime, just like a mutual fund, with no exit penalties.

The 3 Main Exit Strategies

NPS withdrawals strictly fall into three categories. Knowing which one applies to you determines how much money you get in hand versus how much gets locked into a monthly pension.

1. Scenario A: Normal Superannuation (Retirement at Age 60)

   This is the "Happy Path." When you turn 60, your account matures.

   • Lump sum: As of the Oct to Dec 2025 reforms, non government subscribers can withdraw up to 80 % of the total corpus as a lump sum, of which 60% is tax free. Government employees continue under the 60 % lump sum rule.
   • Annuity: A minimum of 20 % of the corpus is required to be used for annuity purchase for non government subscribers. Government employees continue with a 40 percent annuity requirement.
   • If the total corpus is ₹8 lakh or below, the subscriber can withdraw 100 percent as a lump sum without purchasing an annuity.
   • If the corpus is between ₹8 lakh and ₹12 lakh, the subscriber can withdraw up to ₹6 lakh as a lump sum, with the balance paid out through periodic withdrawals for at least six years, an annuity, or other Authority-approved options.

   Note: The investment can be continued and withdrawals deferred up to age 85, subject to PFRDA norms.

2. Scenario B: Premature Exit (Resignation or Voluntary Exit Before 60)

   Under the revised rules, premature exit eligibility is linked to completion of the minimum subscription period, which is 15 years, or other specified conditions under the All Citizen Model.

   • Eligibility: You must have at least 5 completed years within the scheme. If you are using certain corporate plans, make sure to check specific requirements; Non government subscribers can withdraw up to 80 percent as a lump sum, with a minimum 20 percent allocated to annuity, subject to eligibility conditions.
   • Small corpus exemption: if the corpus is ₹8 lakh or below, 100 percent withdrawal is permitted without annuity purchase.

3. Scenario C: Partial Withdrawals (Emergency Access)

   You don't have to close the account to access cash.

   • Limit: Up to 25% of subscriber's own contributions, Employer contribution and returns excluded (INR denominated)
   • Frequency: Partial withdrawals are now permitted up to 4 times(earlier it was 3) during the subscription period, subject to a minimum gap of four years. After age 60, up to 3 withdrawals are allowed with a three year gap.
   • Lock-in: Eligible after 3 years from joining, maximum 3 withdrawals in entire tenure and no mandatory gap, unless it is for a critical illness or medical emergency.

Valid Reasons:

1. Higher education of children or their marriage
2. Acquisition or construction of a first home
3. Treatment for certain critical illnesses such as cancer, kidney failure, or Covid-19
4. Skill development or re-skilling
5. Starting up a new venture or a startup

Loan or Financial Assistance Against NPS Corpus

Now, the accumulated corpus has become a source of either loan or financial assistance to the subscribers under the 2025 reforms. Earlier, loans against NPS savings were prohibited, limiting the liquidity options during times of financial need.

The revised framework allows subscribers to approach regulated lenders for loans against their NPS holdings, within limits and conditions notified by the regulator. This facility adds on to liquidity while keeping the retirement corpus invested. The exact loan amount, tenure, and terms depend on lender policies and regulatory guidelines.

This change brings flexibility for the subscribers needing short-term financial support without exiting the NPS or causing disruption to their retirement planning.

Critical Update 2024-25: The "Penny Drop" Verification

To check fraud and rejected withdrawals, PFRDA introduced Instant Bank Account Verification, popularly known as Penny Drop.

How it works:

• In case of initiation of a withdrawal, the Central Recordkeeping Agency (CRA) transfers a small amount immediately to the registered bank account of approximately ₹1.
• The system checks if the bank account name is the same as your PRAN. - If names match, removal is allowed.

Rejection: Upon failure of Penny Drop (due to name mismatch, dormant account, wrong IFSC) the withdrawal request is summarily rejected.

Practical tip: Let your NPS name be exactly the same as your bank account name. In case you changed your surname after marriage or use different initials, update either the bank or the NPS records before requesting a withdrawal.

NPS Withdrawal in Case of Death of the Subscriber

In cases where an NPS subscriber passes away, the procedure has become easier. As per the new system, the nominee heirs or legal heirs can opt for the entire pension wealth amount as a lump sum.

Buying the annuity is no longer mandatory for the nominee. This enhances the faster transfer of the cash and immediate financial assistance to the family, without the constraint of a long-term retirement benefit scheme. The nominee is able to spend the cash according to their financial requirements.

With this new development, there is clarity and relief for grieving families, and an effective transfer of the NPS corpus.

Tax Implications: What Is Taxable in India?

A major appeal of NPS is its "EEE"(Exempt-Exempt-Exempt) till corpus withdrawal and annuity income is taxable.

Summary of Withdrawal Rules

The NPS withdrawal framework varies based on the timing and purpose of exit. At retirement, subscribers can access a majority of the corpus as a tax free lump sum while securing lifelong income through mandatory annuitisation.

Conclusion

The 2025 reforms significantly increase flexibility by reducing mandatory annuitisation, raising full withdrawal limits, and extending the investment horizon. NPS withdrawals are designed to balance liquidity with long term income security. While the system allows flexibility in genuine cases, it ensures a balance between controlled liquidity and retirement income protection. Knowing the rules in advance helps investors align expectations with reality.

A clear understanding of withdrawal limits, tax implications, and procedural steps ensures that the NPS corpus serves its intended purpose of providing financial stability after retirement.