Are you planning for your retirement? If yes, then you must have heard that National Pension System or NPS is a great plan for your retirement. This government scheme is not just meant for employees working in the public sector but is also applicable for those who are working in the corporate sector or those who are self-employed. To understand how you can withdraw from this retirement investment plan, let’s first understand what NPS is.
What is NPS?
NPS is a voluntary retirement plan that is provided by the government to every Indian citizen – whether resident or non-resident. You are eligible to invest in this scheme from the age of 18 up until you turn 70. There are two types of accounts: Tier I and Tier II.
- Tier-I comes with tax benefits with a minimum initial investment amount of Rs. 500 and a minimum annual contribution of Rs. 1,000. You get a lock-in period till the age of 60, after which you can withdraw.
- Tier-II, on the other hand, has no tax benefits or lock-in period but you can go for it only after you’ve invested in Tier-I. It has an initial investment of Rs. 1,000 and a minimum annual contribution of Rs. 250.
To understand this investment option better, let’s look at the NPS withdrawal rules.
NPS withdrawal rules
Withdrawal rules are applicable only for Tier-I, as it comes with tax benefits and a lock-in period. Tier-II is flexible, and you can withdraw from there whenever you want to. As per the new rules, here are the NPS withdrawal rules for Tier-I:
- Only 60% of the total amount is exempt from tax. The rest 40% is reserved for investment in an annuity scheme, which will provide a fixed amount of money regularly over a predetermined period of time.
- The above rule is applicable to those whose total corpus is more than Rs. 5,00,000. It means that if your corpus amount is below or equal to Rs. 5,00,000, you can withdraw the entire amount in one go at retirement without purchasing an annuity scheme.
Premature withdrawals are tax-free but have the following conditions:
- You’re eligible for a premature withdrawal after a minimum of three years of making the investment.
- The withdrawal amount cannot exceed more than 25% of your total investment.
- Premature withdrawals are only allowed only for specific purposes including children’s higher education, their wedding, purchasing or renovating residence (conditional), medical emergencies, starting a new venture, etc.
- You can make a premature withdrawal only three times during your entire tenure.
NPS exit rules
The minimum age you can start investing in NPS is 18 years while the maximum limit to enter the scheme is 70. The maximum exit age limit for NPS is 75 years as per the new rules. So, even if you start investing at the age of 70, you have at least 5 years to make your investment.
NPS is a great retirement plan as it helps you build a retirement corpus over time for your golden years. Additionally, there are also tax benefits involved. You can consider reaching out to a financial expert who can help you map out your overall retirement and tax-saving investment strategies effectively.