NPS Withdrawal Online: A Step-By-Step Guide

From the second half of the 2023 calendar year, Indian citizens who have invested in the NPS or National Pension Scheme can withdraw their pension amount through the Systematic Lumpsum Withdrawal (SLW) option.NPS subscribers can now go for periodic withdrawals, whether monthly, quarterly, half-yearly, or annually, till the age of 75 years.Before the withdrawal norms were tweaked, they could withdraw up to 60% of their retirement corpus in a lump sum after attaining the age of 60 years, or defer the lump sum withdrawal till they turn 75. If investors go for deferment, they can choose periodic withdrawal.Now, the SLW is applicable for the lump sum portion with subscribers having the option to opt for annuity immediately or defer annuity till 75 years.The facility is available for both Tier I and Tier II accounts of NPS, but only for the normal exit route; it is not available for premature exit or exit because of demise of the subscriber.So, what is NPS, the Tier I and Tier II accounts, and why do we have to know about the NPS withdrawal process ? In this blog, we will look at those questions. But first, let us understand what NPS is and how it works.

As evident from its name – the National Pension Scheme – the NPS is a long-term voluntary retirement savings scheme open to all Indian citizens employed in the public and the private sectors. Learn more about who should invest in an NPS .NPA was launched by the Pension Fund Regulatory and Development Authority (PFRDA) in 2004 for central government employees, and extended to PSUs, and the private sector in 2011. Now it includes NRIs too.NPS is beneficial to investors is many ways . It encourages systematic savings by subscribers during their working life and facilitates them towards the provision of an adequate retirement income. It also offers adequate returns as well as flexibility.Regular payments in NPS comes from investing in annuity plans (annuity refers to the monthly payment that subscribers receive on retirement).After retiring, subscribers in NPS can withdraw 60% of the funds saved in a lump sum, while the remaining 40% can be invested in annuity schemes offered by authorised annuity service providers (ASPs).It is the earnings from these annuity plans that are paid to the subscriber at regular intervals in the form of a steady post-retirement income.However, for this facility, subscribers must buy an annuity plan from a selected ASP. There are various annuity plans to choose from, as listed in the next section.

It is the chosen ASP’s responsibility to manage the funds allocated for buying annuity and payment of the pension after a subscriber attains the age of 60 years. There are five types of annuity plans subscribers can invest in.

• Lifetime Income: In this scheme, the annuity goes to the subscriber when the person is alive but stops with his or her demise.
• Life & Last Survivor with 100% Income : Here too the annuity is paid to the subscriber when he or she is alive and paid to the spouse after subscriber’s demise. It stops after demise of spouse.
• Lifetime Income with Capital Refund : Here, the principal amount is paid to nominee/legal heir after demise of the subscriber, who is paid the annuity when alive.
• Life & Last Survivor with 100% Income with Capital Refund : Annuity payments to subscriber during lifetime, and to spouse after his or her demise of the subscriber, annuity to spouse, on whose demise principal amount goes to the nominee.
• NPS-Family Income : Here, annuity goes to spouse after subscriber’s demise, but when the spouse dies, annuity is re-issued to family members in the following order of preference:
• Deceased subscriber’s living dependent mother;
• Deceased subscriber’s living dependent father;
• After the coverage of deceased subscriber’s mother and father, the purchase price is returned to surviving children / legal heirs.

This brings us to the NPS withdrawal process when subscriber is alive. But before we look at it, we also need to look at what us called the Tier I and Tier II accounts. This is because NPS withdrawal rules differ depending upon the type of account, type of withdrawal, and the timing of the withdrawal.

NPS is available under two types of accounts: Tier-I and Tier-II. Tier-I is a mandatory account for investing in NPS. If NRIs (Non-Resident Indians) want to participate in NPS, they can open only this account.Tier-II is a voluntary saving account associated with the subscriber’s PRAN (Permanent Retirement Account Number). You can create your PRAN card by following this process .Moreover, Tier-II accounts can be opened only after opening Tier-I accounts. They also offer greater flexibility in terms of withdrawal because, unlike the Tier-I accounts, you can withdraw from your Tier-II account at any point.You can open your NPS account here . Using your Aadhar Card to open such an account is a streamlined process too, learn how .If you are an NRI, here is everything you need to know about opening an NPS account being an NRI .

The general impression is that NPS investments are not accessible until exit i.e., until the subscriber attains the age of retirement of 60 years.But as we have discussed earlier, subscribers can withdraw a certain percentage of the corpus as a lump sum on retirement, and the remaining amount is paid to them as annuity in the form of monthly pension.NPS also permits partial withdrawal for specific reasons. And alongside, as stated, it is now offering the SLW option as well.However, financial advisors usually advise against partial withdrawals so that you can enjoy the maximum benefits of the scheme and reap rich rewards once you attain the age of 60.The scheme also has a retail model , under which all employees, especially those working in a non-government and non-corporate organisation, can invest in NPS.

There are separate withdrawal rules for Tier I and Tier II accounts. Let us begin with the first:

• For investors who have invested in NPS for three years, withdrawal of a maximum of 25% of the total contribution is permitted.
• An investor may apply only three times for partial NPS premature withdrawal during the entire tenure of investment.
• An NPS withdrawal form Tier 1 online is available on the official website.
• The NPS partial withdrawal online process can be carried out free of cost.
• As per PFRDA, partial withdrawals from NPS Tier-I account are permitted for the following reasons:

1. Higher education (self/spouse/children)
2. Children’s marriage including that of legally adopted children
3. Construction/purchase of residential accommodation in the subscriber’s name or jointly with his/her spouse. (Not applicable if subscriber already owns a house)
4. Treatment of critical illnesses of the subscriber or dependents i.e., spouse, children and /or dependent parents. Examples of some critical illnesses are serious accidents, coma, stoke, paralysis, cancer, kidney failure, organ transplants, heart surgeries like bypass, replacement of valve, etc.

• Withdrawal can only be made through points of presence service providers (POP-SPs). The subscriber must fill out the UOS – S12 form along with relevant documents following which the POP-SP initiates the withdrawal process. Disbursal is completed within three days.
• No restrictions on withdrawals about amount/purpose.
• No tax benefits.

• Tier I
• Tier II

Withdrawals can be done both online or offline by filling in NPS withdrawal form Tier 1 and form Tier 2.

• Online withdrawal process For online withdrawals, the requisite form must be requested for and filled in through the subscriber’s NPS Account log-in I.D. using PRAN (Permanent Retirement Account Number).All NPS online withdrawal requests must be verified and authorized by the associated POP-SP.
• Offline withdrawal process Subscribers may also withdraw from their NPS corpus offline by visiting the nearest POP-SP. The redemption amount will depend on the amount of investment and the applicable NAV at the time of withdrawal.

A subscriber can withdraw up to 60% of the total NPS corpus in a lump sum or by SLW till the age of 75 years, and invest the remaining 40% corpus in an annuity plan from a life insurance firm.According to the new NPS rules, if the corpus is less than or equal to Rs. 5 lakh, subscribers may withdraw the whole amount without having to purchase an annuity plan.There is noNPS withdrawal tax;in other words,withdrawal amounts are tax-free. However, the annuity is taxable as per the income slab.

In case of a subscriber wanting to retire voluntarily prior to the age of superannuation, that person can go for voluntarily before the completion of the tenure.However, only subscribers who have held an NPS account for a minimum of 10 years are eligible for NPS withdrawal before retirement.As per new NPS premature withdrawal rules, the entire corpus can be withdrawn if it is less than or equal to Rs. 2.5 lakh. The entire amount is taxable as per tax slabs.If the entire corpus exceeds Rs 2.5 lakh, the subscriber can withdraw a maximum of 20% of the corpus and the remaining 80% must be used to purchase an annuity plan.For instance, if the corpus is Rs 7 lakh, only Rs 1.4 lakh can be withdrawn and Rs 5.6 lakh must be used to purchase an annuity plan. The annuity is taxable as per tax slabs.

In case a subscriber dies, the entire accumulated pension wealth (i.e. 100% NPS corpus) will be paid to the nominees or legal heirs.These beneficiaries have the option of purchasing any of the annuities being offered upon exit, when applying for withdrawal benefits.If opting for annuity, they must select an ASP and the annuity scheme in the death withdrawal form.

Tax-freepartial withdrawals are allowed after a three-year lock-in period, with a maximum withdrawal of 25% of the total corpus allowed at a time. Subscribers are allowed to make a maximum of three withdrawals during the entire tenure of their NPS subscription.

Although NPS withdrawals are tax-free, the annuity is taxable as per the subscriber’s income slab. Payment is taxable in correspondence with years of payment.All partial withdrawals from NPS Tier-I accounts can be carried out free of cost.

From April 1, 2023, the PFRDA has made it mandatory for all NPS subscribers to upload the following documents to the Central Record-Keeping Agency (CRA) user interface before withdrawing the pension corpus:

• NPS withdrawal form
• Proof of identification and residence as stated in the withdrawal request
• Bank account proof
• A photocopy of the Permanent Retirement Account Number (PRAN) card.

This move has been introduced to facilitate the quick distribution of annuity income.As per the NSDL website submission of the following documents for NPS withdrawal is mandatory:

• Advance stamped receipt signed and filled, along with the revenue stamp of the concerned NPS subscriber
• Bank passbook, cancelled cheque, bank’s letterhead, bank certificate with proof of account holder name, number, and IFSC code
• If eligible for complete withdrawal, then one also needs to submit an undertaking cum request form
• KYC documents
• Original PRAN Card

After the submission of the required documents, the POP will authorise the Withdrawal request.

The PFRDA has reduced the time frame for the processing withdrawal requests under the NPS account to three days – one day for authorization and two days for settlement.In a bid to streamline the NPS withdrawal process , the CRA sends communications to the subscriber and the nodal office to initiate the withdrawal claim in the CRA system.For each claim request, a Claim ID is generated. This is done six months before the date of superannuation/attainment of 60 years of age.

Subscribers can check the withdrawal status in any one of the following ways:

• Via the ‘Limited Access View’ (Pre-Login) functionality which is present on the home page of the CRA website ( http://www.cra-nsdl.com ), or
• Through their NPS account login, under the menu ‘Exit Withdrawal Request’>>'Withdrawal Request Status View’.

Withdrawal proceeds are credited to the subscriber’s/claimant’s bank account (as per the bank details provided at the time of initiating the online withdrawal request) through electronic mode only.
Returns under NPS are completely market-based i.e., they depend on the NAV of the pension fund schemes. Benefits accrued depend upon the contribution and investment growth up to the point of exit from NPS.Subscribers are eligible for tax deductions u/s 80C for their contribution to NPS. If a deduction is claimed, then the account will have a lock-in period of three years.Usually, NPS investments are comparatively able to generate better returns than the Public Provident Fund (PPF), simply because the bulk of its funds are invested in equity.