Normal retirement in NPS is now defined as reaching age 60 or completing 15 years, whichever comes first. According to reports from PFRDA, subscribers can withdraw up to 80% of the corpus as a lump sum, but only 60% is tax-exempt under the Income Tax Act. The remaining 40% faces taxation at applicable slab rates. At least 20% of the corpus must be used to purchase an annuity from one of the 15 PFRDA-authorised Annuity Service Providers, with the annuity purchase being irreversible and tax-exempt at purchase but taxable as pension income.
For subscribers with NPS savings up to ₹8 lakh, the rules are more favorable as they can withdraw the full amount as a lump sum with no annuity obligation. As reported by PFRDA, for corpus between ₹8 lakh and ₹12 lakh, subscribers can withdraw up to ₹6 lakh as lump sum, with the balance either drawn down through phased withdrawals over six years or used for annuity purchase. In both cases, 60% of the withdrawal remains fully tax-free under Section 10(12A) of the Income Tax Act, while the remaining 40% is added to income and taxed at applicable slab rates.
Subscribers exiting before age 60 face more restrictive rules. According to PFRDA, if the accumulated corpus is ₹5 lakh or less, the full amount can be withdrawn. For corpus exceeding ₹5 lakh, only 20% can be taken as lump sum, with the remaining 80% compulsorily going toward annuity purchase. Even in premature exit scenarios, only 60% may qualify as tax-exempt under existing IT Act provisions, with these rules not applying to those who joined NPS at age 60 or above.
Subscribers can defer NPS withdrawal up to age 75, with the option to defer lump sum, annuity, or both portions. As reported by PFRDA, the Systematic Lump Sum Withdrawal (SLW) allows phased payouts rather than one-time withdrawal, potentially keeping annual taxable income within lower slabs. The tax treatment remains consistent: up to 60% of the corpus stays tax-free, while the annuity portion is exempt at purchase but taxable as pension income.
In case of subscriber death, the entire NPS corpus is transferred to the nominee with no tax liability in their hands. According to PFRDA, the nominee has the option to purchase an annuity but it is not mandatory. This remains one of the most clearly defined and subscriber-friendly provisions in the NPS framework, providing significant tax advantages for beneficiaries.
