There are two types of accounts under NPS – Tier-I and Tier-II. Opening Tier-I accounts is mandatory for investing in NPS. Tier-II accounts can be opened only after opening Tier-I accounts.
NPS serves as a safe investment and social security option, especially for salaried individuals from the private sector. Tax deductions u/s 80C are available for the investments in NPS. Usually, the money invested in the NPS are able to generate higher returns than the Public Provident Fund (PPF), simply because the majority of the funds are invested in equity.
At the time of retirement, the investors may withdraw a certain percentage of the corpus as lumpsum. The remaining amount is paid to them as monthly pension. However, in certain special cases, the investors are allowed to withdraw certain sums during the tenure of their investment from their NPS account. This is known as partial withdrawal from NPS.
While there are no restrictions on such withdrawals from Tier-II accounts, the following rules are applicable for the withdrawal of funds from NPS Tier-I account:
● The investor must have invested in the NPS scheme for at least 3 years.
● Only 25% of the accumulated corpus can be withdrawn as ‘partial withdrawal’ from an NPS account.
● There can be maximum 3 such partial withdrawals from an NPS account during its tenure i.e. till the account holder reaches the age of 60.
● Partial withdrawals from NPS are allowed only in case of certain contingencies like medical emergencies, higher education of children, marriage in the family, buying or construction of a new house etc.
● There should be an interval of at least 5 years between any two partial withdrawals. However, in case of a medical emergency, the investor can make successive partial withdrawal at lesser intervals i.e. less than 5 years.
● Partial withdrawals can also be made for establishing a start-up venture or for self-development, up-skilling or re-skilling.
● Such partial withdrawals will be exempted from tax.
As we can see that NPS is a smart investment choice for building your retirement corpus, the facility of partial withdrawal only adds more flexibility to it. However, financial advisors usually advise against partial withdrawals so that you can enjoy maximum benefits of the scheme and reap rich rewards once you attain the age of 60.
Learn more about your Pension Plans here.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
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