The Pension Fund Regulatory and Development Authority (PFRDA) has recently tweaked the Rules pertaining to Partial Withdrawal from NPS Tier 1 account (Tier II account is similar to the savings account where a subscriber is free to withdraw money as and when required). The modified rules allow subscribers, who have contributed for three years, to withdraw 25% of their corpus for certain purposes from Tier I account. Earlier the withdrawal was allowed only after completion of 10 years but it has now been cut down to 3 years. Further, the partial withdrawal rule is only for the contribution made by the subscriber i.e. 25% withdrawal amount would not consider employer contribution. Also, only three partial withdrawals are allowed during the entire tenure of subscription under the National Pension System.
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Purpose of Partial Withdrawal from NPS
- For higher education or marriage of children which includes legally adopted children.
- For purchase or construction of residential premises either in the name of the subscriber or in the joint ownership with the legal spouse of the subscriber. However, if the subscriber already owns a residential house or flat either individually or jointly (excluding ancestral property) then he/she will not be allowed to withdraw money for buying or constructing residential premises.
- For the treatment of specified Medical conditions of the subscriber, spouse, children or dependent parents.
Refer: List of 14 Diseases
Process of Partial Withdrawal from NPS
A subscriber is required to fill partial withdrawal form 601PW and submit it to the CRA through the Nodal Officer / Point-of-Presence (POP) which includes most of the big banks / Aggregator.
In the form Percentage of contribution, the purpose of withdrawal and bank detail shall be filled and form shall be accompanied by the bank account proof (like cancelled cheque/copy of bank passbook/bank certificate). The Nodal officer will ensure the correctness of the form and forward the withdrawal request to CRA. After satisfying with details, CRA will electronically credit the amount in the bank account of the subscriber.
Currently, NPS falls in the category of Exempt, Exempt, Tax (EET) i.e. no tax shall be levied on the amount of contribution and accumulation under NPS, however, at the time of withdrawal, the principal along with the interest is taxable under the head of the salary.
The Government has granted relaxation on the taxation of withdrawal amount that if subscriber withdraws up to 40% of the corpus at the time of maturity i.e. at the age of 60 years than the withdrawal shall not be taxed. The remaining 60% is to be converted into an annuity.
The above changes in Partial Withdrawal from NPS comes into effect from 10th January 2018.