How to Withdraw NPS: The Complete Withdrawal Process

Withdrawing from NPS isn't a single "redeem" click like a mutual fund — it involves choosing an annuity provider and product, since part of the corpus is legally required to convert into a lifelong pension. Here's the actual process. (If you haven't opened your account yet, start with how to open an NPS account.)

At Normal Retirement (Age 60)

1. Initiate the exit request on your CRA portal (or via your nodal office/POP) within the window opened around your 60th birthday.
2. Complete the withdrawal form — choose how much to withdraw as lump sum and how much to annuitize.
3. Mandatory annuitization: if your total corpus exceeds ₹5 lakh, at least 40% must be used to purchase an annuity (a regular pension payout product) from a PFRDA-empanelled Annuity Service Provider (ASP — typically a life insurance company). The remaining up to 60% can be withdrawn as a tax-free lump sum.
4. Corpus below ₹5 lakh: you're allowed to withdraw the entire corpus as a lump sum with no mandatory annuitization.
5. Choose your annuity type — options include a pension for life, pension for life with return of purchase price to nominee, joint life pension covering a spouse, and others. This choice is largely irreversible once made, so compare ASP quotes and annuity types carefully before submitting.
6. Documentation — PRAN, bank details, KYC documents, and a subscriber declaration form are typically required; specifics can vary slightly by CRA.

Premature Exit (Before Age 60)

If you exit NPS before 60 (other than for the specific partial-withdrawal reasons below):

• You must annuitize at least 80% of the corpus (a higher percentage than at normal retirement, since NPS is designed to discourage early exit).
• The remaining 20% can be withdrawn as a lump sum.
• If the total corpus is very small (below a threshold set by PFRDA), full lump-sum withdrawal without annuitization may be permitted.

Partial Withdrawal Before 60

Tier I allows limited partial withdrawals (typically up to 25% of your own contributions, not the full corpus including employer/government contributions or returns) for specific purposes — higher education of children, marriage of children, purchase/construction of a house, and specified medical treatments. A maximum number of such withdrawals is allowed over the subscriber's lifetime — check current PFRDA limits before applying.

On Death of the Subscriber

The entire corpus is paid to the nominee/legal heir. No mandatory annuitization applies in this case — the nominee can choose to withdraw the full amount or purchase an annuity voluntarily.

Choosing an Annuity Service Provider (ASP)

• Compare annuity rates across empanelled ASPs — rates vary and directly determine your monthly pension amount.
• Decide on annuity type upfront: single life vs joint life (covering a spouse) — joint life pays a lower monthly amount but continues for the surviving spouse.
• Annuity income is taxable at your slab rate in the year received, unlike the lump-sum withdrawal portion which is tax-free.

Common Mistakes

• Not comparing ASP annuity rates before choosing — a small difference in the quoted rate compounds significantly over 20–30 years of pension payments.
• Choosing single-life annuity without considering a dependent spouse's income needs after the subscriber's death.
• Missing the exit-request window around age 60, which can complicate the process (continuation up to age 75 is permitted if you choose to defer, but you must actively choose this rather than assume it happens automatically).
• Forgetting that only the lump-sum portion is tax-free — the annuity pension itself is taxed as regular income every year it's received.

Key Principle

NPS withdrawal isn't a one-time transaction — the annuity portion becomes a decades-long income stream, so the ASP and annuity-type choice deserves the same care as the original investment decision.