Explore the rules and tax implications of partial withdrawals from the National Pension Scheme (NPS) for FY 2025-26. Understand the conditions, limits, and tax benefits associated with Tier-I and Tier-II accounts.
Partial Withdrawal From NPS
Withdrawal Terms And Conditions
Tax Treatment on Partial Withdrawal From NPS
FAQs on NPS Withdrawal
Understanding the basics of partial withdrawals from NPS accounts.
Types of NPS Accounts
NPS offers two types of accounts with different rules for withdrawal.
Tier-I is mandatory for NPS subscribers.
Tier-II is a voluntary savings account linked to Tier-I.
Tier-II offers more flexibility but has specific conditions for government employees.
Eligibility for Partial Withdrawal
Conditions under which partial withdrawals are permitted.
Subscriber must complete 3 years in NPS.
Withdrawals allowed for specific purposes like education, marriage, and medical treatment.
Maximum of 3 withdrawals allowed during the entire tenure.
Withdrawal Limits
Limits on the amount that can be withdrawn.
Up to 25% of the subscriber's own contributions can be withdrawn.
Employer contributions are not eligible for withdrawal.
Withdrawals are capped at 60% of the corpus at retirement.
Purpose of Withdrawal
Specific purposes for which withdrawals are permitted.
Higher education and marriage of children.
Purchase or construction of a residential house.
Treatment of critical illnesses for self or family.
Tier-I Withdrawal Rules
Specific rules governing withdrawals from Tier-I accounts.
Withdrawals are permitted only after 3 years of account opening.
A 5-year gap is required between successive withdrawals.
Withdrawals are allowed only for specified purposes.
Tier-II Withdrawal Rules
Flexibility and conditions for Tier-II account withdrawals.
No restrictions on withdrawals from Tier-II accounts.
Government employees claiming Section 80C deductions face a 3-year lock-in.
Withdrawals within the lock-in period are taxable.
Tier-I Withdrawal Tax Implications
Tax treatment for withdrawals from Tier-I accounts.
25% of the subscriber's contributions are tax-free.
Withdrawals exceeding 25% are taxable as per slab rates.
Form 16A is required for tax deduction at source.
Tier-II Withdrawal Tax Implications
Tax implications for Tier-II account withdrawals.
Withdrawals are treated as capital gains.
Short-term gains taxed at slab rates; long-term gains at 10% without indexation.
Equity-oriented funds have specific tax rates under Section 111A and 112A.
Worked Example
Example illustrating tax savings on withdrawal.
Assume a withdrawal of ₹1 lakh from Tier-I.
25% (₹25,000) is tax-free; balance ₹75,000 taxed at slab rate.
If in 20% slab, tax payable is ₹15,000.
What is the maximum amount I can withdraw from my NPS Tier-I account?
You can withdraw up to 25% of your own contributions from the NPS Tier-I account. Employer contributions are not eligible for withdrawal.
Are withdrawals from NPS Tier-II accounts taxable?
Yes, withdrawals from Tier-II accounts are taxable. They are treated as capital gains and taxed based on the holding period and type of fund.
Can I withdraw from my NPS account for my child's education?
Yes, partial withdrawals from NPS Tier-I accounts are permitted for the higher education of your children, subject to the 25% limit.
Is there a lock-in period for NPS Tier-II withdrawals?
For government employees claiming Section 80C deductions, there is a 3-year lock-in period for Tier-II withdrawals. Other subscribers have no lock-in.
How are long-term capital gains from NPS Tier-II taxed?
Long-term capital gains from Tier-II accounts are taxed at 10% without indexation if held for more than 12 months for equity funds, as per Section 112A.
What forms are required for NPS withdrawals?
Form 101-GP is required for Tier-I withdrawals, and Form 102-GP for Tier-II withdrawals. Additionally, Form 16A is needed for tax deduction at source.
Can I make multiple withdrawals from my NPS account?
Yes, you can make up to 3 partial withdrawals from your NPS Tier-I account during the entire tenure, with a minimum 5-year gap between each.
Are there any tax benefits for NPS withdrawals at retirement?
At retirement, up to 60% of the NPS corpus can be withdrawn tax-free. The remaining 40% must be used to purchase an annuity, which is taxable as income.
What is the tax treatment for withdrawals under the new tax regime?
Under the new tax regime, the tax treatment for NPS withdrawals remains the same as the old regime, with specific exemptions and limits applicable.
How does the tax treatment differ for equity and non-equity funds in Tier-II?
Equity funds in Tier-II are taxed at 15% for short-term gains and 10% for long-term gains. Non-equity funds are taxed at slab rates for short-term and 20% with indexation for long-term gains.