NPS Exit Rules Explained: How to Withdraw from NPS at Retirement and Before
Rohit had been contributing to NPS for 22 years. He turned 60, requested his Claim ID from the CRA, logged in expecting a withdrawal screen — and found himself staring at a list of annuity service providers, pension plan types, and percentage allocation boxes. He hadn’t the faintest idea what to pick. He didn’t even know he’d have to pick an insurance product to access his own retirement money.
This is the NPS exit trap. You spend years building a corpus. Then the rules for getting your own money back turn out to be far more complicated — and far more consequential — than anyone told you.
The good news: PFRDA overhauled NPS withdrawal rules in December 2025, and the changes genuinely favour the subscriber — especially if you’re in the private sector. The new NPS exit rules are more flexible than they’ve ever been. But you need to understand exactly which rules apply to you, because the rules for a government employee are completely different from the rules for someone in the All Citizen Model. And the Income Tax Act hasn’t kept up with PFRDA’s changes, which creates a trap of its own. Let’s go through all of it.
What This Article Covers
What Is Normal Exit from NPS?
Normal exit means you’re closing your Tier-I NPS account at the standard retirement milestone: either age 60 or after completing 15 years of subscription, whichever comes first. For most salaried professionals who started in their 30s, age 60 is the trigger.
A quick note on Tier-II: Tier-II accounts have no lock-in and no withdrawal restrictions. You can pull money out of Tier-II anytime, like a mutual fund. Everything below applies to Tier-I only, which is where the real rules — and the real corpus — live.
The NPS Trust website (updated May 2026) now shows two separate withdrawal frameworks: one for non-government subscribers and one for government employees. This distinction is critical. Let’s do both.
Normal Exit Rules for Private Sector Subscribers (Non-Government)
This is where the December 2025 changes made the biggest difference. The current framework, sourced directly from the NPS Trust’s official Normal Exit page (last updated May 8, 2026):
| Your corpus at exit | What you can do |
| ₹8 lakh or less | Withdraw 100% as lump sum. No annuity required. |
| ₹8 lakh to ₹12 lakh | Take up to ₹6 lakh as lump sum; balance via annuity or SUR (min. 6 years) |
| More than ₹12 lakh | At least 20% must go into annuity; up to 80% as lump sum (or SLW/SUR) |
Previously, non-government subscribers had to annuitise 40% of their corpus if it exceeded ₹5 lakh. That mandatory annuity floor has been halved to 20%, and the full-withdrawal limit has been raised from ₹5 lakh to ₹8 lakh.
For someone with a ₹50 lakh corpus: the new rules give ₹40 lakh in hand immediately instead of ₹30 lakh. That’s ten lakh rupees more in your bank account on day one of retirement. That is a genuinely significant change.
For smaller corpuses — say someone who contributed for only a few years or at low amounts — the ₹8 lakh full-withdrawal threshold means most people in that situation won’t be forced into an annuity at all.
Normal Exit Rules for Government Sector Employees
Here’s where things differ. Government employees — central and state — are held to a stricter standard at the top end. The December 2025 rules gave government employees the same small-corpus flexibility (₹8 lakh threshold), but kept the higher annuity requirement for larger corpuses.
| Your corpus at exit | Government sector rules |
| ₹8 lakh or less | 100% lump sum. No annuity required. |
| ₹8 lakh to ₹12 lakh | Up to ₹6 lakh lump sum; balance via annuity or SUR (min. 6 years) |
| More than ₹12 lakh | Minimum 40% must go to annuity; up to 60% as lump sum |
The contrast with private sector: for a ₹50 lakh corpus, a government employee gets ₹30 lakh in hand and must put ₹20 lakh into an annuity. A private sector employee with the same corpus gets ₹40 lakh in hand and puts just ₹10 lakh into an annuity.
The ₹8 lakh small-corpus rules are identical across both sectors. The divergence only happens when the corpus crosses ₹12 lakh — government employees face 40% annuity, private sector faces 20%.
Premature Exit: Leaving NPS Before 60
Premature exit means closing your NPS Tier-I account before reaching 60 or before completing 15 years of subscription. These rules are deliberately stricter because NPS is, at its core, a pension product.
Here’s what the NPS Trust’s official Premature Exit page (last updated May 29, 2026) shows — and these rules apply to both government and non-government subscribers:
| Your corpus at premature exit | What happens |
| ₹5 lakh or less | 100% can be taken as lump sum, or via periodic payouts (SLW/SUR) |
| More than ₹5 lakh | Minimum 80% must go into annuity. Maximum 20% as lump sum. |
If Priya decides to leave her job at age 45, voluntarily close her NPS account, and her corpus is ₹30 lakh — she can only take ₹6 lakh (20%) in hand. The remaining ₹24 lakh goes into an annuity paying her a monthly pension that is then taxed as income at her slab rate.
This is why premature exit from NPS is almost always the wrong financial decision. Even if you change jobs, move abroad temporarily, or take a break from work — keep the NPS account running. The cost of premature exit is enormous.
One important clarification: if you’re joining NPS at age 60 or above, premature exit rules do not apply to you at all. Normal exit rules kick in from day one.
Partial Withdrawal: Accessing Money Without Closing the Account
Partial withdrawal is not the same as exit. You’re not closing anything — you’re pulling out a portion of your own contributions while the account stays open and keeps running. PFRDA permits this under specific conditions.
The core rules (per PFRDA regulations, as confirmed by both the NPS Trust FAQ and Business Standard’s January 2026 reporting on the December 2025 rule changes):
- Minimum tenure: 3 years of subscription must be completed before any partial withdrawal is allowed.
- Withdrawal limit: Up to 25% of your own contributions only. Employer contributions, government contributions, and accumulated returns are excluded from this calculation.
- Frequency: Up to 4 times during your total subscription period (raised from 3 by the December 2025 changes), with a minimum gap of 4 years between withdrawals.
- Permitted reasons: Higher education of children (including adopted), marriage of children, purchase or construction of a first home, critical illness treatment (self or specified family members), and disability-related business setup.
The critical illness condition is often misunderstood. PFRDA specifies a defined list of critical illnesses — cancer, kidney failure, stroke, organ transplants, and similar serious conditions. A dengue hospitalisation, a broken leg, or routine surgery does not qualify. If you submit a partial withdrawal request citing ‘medical treatment’ for something that doesn’t match the PFRDA list, it will be rejected outright.
Partial withdrawals within these conditions are fully tax-free under Section 10(12B) of the Income Tax Act.
Post-60, a separate partial withdrawal provision applies: subscribers who stay invested beyond 60 can make partial withdrawals with a minimum gap of 3 years, capped at 25% of their own contributions.
The Tax Trap Hidden in the New Rules
This is the section most NPS guides skip, and it could cost you real money.
PFRDA’s December 2025 changes allow non-government subscribers to withdraw up to 80% of the corpus as a lump sum at normal exit. But the Income Tax Act has not been updated to match.
Under Section 10(12A) of the Income Tax Act, only 60% of your NPS corpus is exempt from tax at the time of withdrawal. The annuity purchase portion is tax-free at the time of purchase (though the annuity income you receive later is taxable at slab).
This creates a direct mismatch. PFRDA says take 80% as lump sum. The Income Tax department exempts only 60%. The extra 20% you’re now legally allowed to withdraw? Taxable at your income slab rate in the year of withdrawal.
CA Prakash Hegde confirmed this in 1Finance’s December 2025 analysis: “Even though 80% withdrawal is now allowed under the revised NPS regulations, the portion exceeding 60% will remain taxable under current income tax provisions — until the Income Tax Act is suitably amended.”
The numbers: for a ₹50 lakh corpus, 60% = ₹30 lakh is tax-free as lump sum. The additional 20% = ₹10 lakh is taxable. In the 20% tax bracket, that’s ₹2 lakh in tax that would not exist if you took only 60% as lump sum and directed the extra 20% into an annuity or SUR instead.
The smarter approach for many retirees: take the tax-free 60% as lump sum, put the mandatory 20% into an annuity, and use the Systematic Unit Redemption (SUR) option to spread the remaining 20% across multiple years — keeping annual withdrawals within lower tax slab thresholds.
Systematic Unit Redemption (SUR): The SWP Inside NPS
SUR — also called SLW (Systematic Lump Sum Withdrawal) — is the new exit option PFRDA introduced to replace the older phased withdrawal system. The simplest way to understand it: think of a mutual fund’s Systematic Withdrawal Plan, except this one operates inside your NPS account.
Here’s how it works: instead of taking your eligible lump sum all at once, you instruct PFRDA to pay you a fixed amount periodically — monthly, quarterly, half-yearly, or annually — while the rest of your corpus stays invested in your existing fund allocation and keeps earning market-linked returns.
For the ₹8–₹12 lakh slab, the SUR option must run for at least 6 years. For larger corpuses, the frequency and tenure are more flexible.
The key tax benefit: SUR draws from the tax-exempt lump sum component (the 60% portion). So the periodic payouts you receive from SUR are completely tax-free — unlike annuity pension income, which is added to your total income and taxed at slab, and unlike FD interest, which is also taxable. This makes SUR a genuinely useful tool for managing retirement income tax efficiently.
You Can Now Stay in NPS Till Age 85
One of the other major December 2025 changes: the maximum age for remaining invested in NPS has been raised to 85 years for all subscribers. Previously, non-government subscribers could stay until 70 (government until 75). That ceiling is now 85 for everyone.
What this means in practice: if you turn 60 and don’t need the money urgently, you are not required to exit. PFRDA will generate a Claim ID six months before your 60th birthday and notify you by SMS and email — but you are free to continue without acting on it.
Deferring can make financial sense. On a ₹50 lakh corpus earning 9% per annum, waiting just 5 years to age 65 grows the corpus to approximately ₹77 lakh. The annuity you eventually buy with ₹77 lakh at age 65 will pay a meaningfully higher monthly pension than one bought with ₹50 lakh at 60. Annuity rates also tend to be better for older ages. That’s not a reason to delay endlessly, but it’s a reason not to panic-exit the day you hit 60.
Note: once you enter the deferment/continuation mode, no fresh contributions are accepted and no partial withdrawals are allowed during that deferment period. The corpus simply stays invested.
What Happens to Your NPS If You Die Before Retirement?
If a subscriber passes away before the normal exit age, the entire accumulated corpus — 100% — is paid to the registered nominee as a lump sum. No annuity purchase is required. This amount is completely tax-free under Section 10(12A).
This is one of NPS’s most underappreciated features: the nominee does not have to split between lump sum and annuity the way the subscriber would. They get everything, cleanly, in one payment. The process begins when the nominee contacts the CRA with the subscriber’s Claim ID and required documents.
For this to work without friction, nomination must be registered in the NPS account online. Without a registered nominee, the legal heir will need a succession certificate — a process that commonly takes 6–12 months and involves court proceedings. Ten minutes of form-filling now can save months of distress later.
How to Initiate Your NPS Withdrawal Online: Step-by-Step
For Retirement / Normal Exit (Age 60)
- PFRDA’s CRA generates a Claim ID automatically, six months before your 60th birthday. You’ll receive an SMS and email. Use that window to update your bank details, address, and nominee if needed.
- Log in to the CRA portal: cra.nps-proteantech.in (Protean/NSDL) using your PRAN and password.
- Go to ‘Exit from NPS’ → ‘Withdrawal Request’. Select ‘Superannuation’ as the exit type.
- Choose your lump sum and annuity split based on your corpus slab (see tables above).
- If your corpus requires annuity purchase, select an Annuity Service Provider (ASP) from the PFRDA-approved list and pick an annuity plan. Compare rates before selecting — they vary between providers.
- Upload KYC documents: Aadhaar, PAN, cancelled cheque or bank passbook copy, and withdrawal form Annexure 302 (for retirement).
- Verify via OTP sent to your registered mobile number.
- Processing takes approximately 15–20 working days. The lump sum is credited to your bank account; the annuity portion goes directly to the chosen ASP.
For Partial Withdrawal
- Log in to the CRA portal. Go to ‘Transact Online’ → ‘Partial Withdrawal from Tier-I’.
- Select the reason (education, medical, marriage, housing, etc.) and enter the percentage of your own contributions you wish to withdraw (up to 25%).
- Submit. The system generates Form 601-PW. Submit this at your NPS Nodal Office or POP along with supporting documents (medical certificate, admission proof, etc. depending on reason).
- Processing typically takes 7–10 working days after approval.
What to Do Right Now
If you’re more than 10 years from retirement: log in to npstrust.org.in at least once a year. Confirm your nominee is registered. Verify your bank account details are current. Check that your fund allocation still makes sense for your age.
If you’re within 5 years of turning 60: start estimating your likely corpus at exit. Will you cross ₹8 lakh? ₹12 lakh? Your answer determines whether you’ll face a mandatory annuity or can take everything out. If you’re close to a slab boundary, stepping up contributions could push you into a more favourable bracket.
If you’ve already crossed 60 and are still invested: you don’t have to exit. Deferring and using SUR is a legitimate and often tax-efficient strategy. Log in to the CRA portal, go to ‘Manage My Withdrawal → Continuation/Deferment → Initiate Request.’
If you’re a nominee on someone else’s NPS account: check that your details are registered. If the account holder has not nominated you formally, prompt them to do it now. It costs nothing and takes under 10 minutes online.
Related Reading on The Salary Investor
- NPS vs PPF: Which wins for retirement? A plain-numbers comparison
- EPF mistakes that cost salaried employees — and how to avoid them
- How much term insurance do you actually need in India?
- Section 80C: Every deduction explained, ranked by what’s actually worth it
- Old vs New tax regime: Which works better on an Indian salary in 2026?
Disclaimer: Data in this article is sourced from PFRDA and NPS Trust official publications as of May 2026, and from verified financial media including Business Standard and 1Finance. NPS returns are market-linked and not guaranteed. Tax rules cited are based on the Income Tax Act as currently in force and may be amended. The illustrative return calculation (9% p.a. deferral example) is for indicative purposes only and does not constitute a return projection. This article is for general financial education and does not constitute investment advice. Please consult a SEBI-registered investment advisor or a qualified Chartered Accountant before making retirement withdrawal decisions.
Sources: PFRDA eases NPS annuity exit rules for retirees (Business Standard, May 15, 2026) · NPS Normal Exit Rules — Official NPS Trust (NPS Trust, updated May 2026) · New NPS rules: 10 key changes (Business Standard, Jan 9, 2026) · New NPS withdrawal rules — 80% lump sum, tax implications (1Finance, Dec 2025) · NPS exit rules explained — Business Standard (Business Standard, Feb 20, 2026)
He figured out most of what he knows about personal finance not from courses or advisors, but from years of reading, making mistakes, and fixing them. The Salary Investor is his attempt to save other salaried Indians the same time and money.
He is not a CA or a SEBI-registered advisor. He writes as a fellow salaried person who has been in the trenches — navigating EPF, ITR, 80C, salary slips, and market volatility.