The National Pension System is intended primarily for retirement. Unlike an ordinary savings account, money held in an NPS Tier I account cannot always be withdrawn freely. The amount available as a lump sum depends on the type of exit, the subscriber’s sector, accumulated pension wealth and applicable PFRDA rules.

Significant changes were introduced through the PFRDA exit and withdrawal amendments notified in December 2025. Subscribers should therefore avoid relying on older articles that mention only the previous 60% lumpsum and 40% annuity structure.

This guide primarily explains the current rules for non-government subscribers under the NPS All Citizen Model. Government-sector subscribers may be subject to different provisions linked to their service rules.

What Is a Premature NPS Exit?

For an All-Citizen Model subscriber who joined NPS before age 60, an exit before reaching age 60 or completing 15 years of subscription, whichever condition is relevant, is treated as a premature exit.

A premature exit closes the subscriber’s Tier I pension account. It is different from a partial withdrawal, in which the NPS account remains active and only an eligible portion is withdrawn for a permitted purpose.

Under the current framework, a subscriber taking a premature exit may generally withdraw up to 20% of the accumulated pension wealth as a lump sum. At least 80% must be used to purchase an annuity.

Full Withdrawal for a Small Corpus

If the accumulated pension wealth at premature exit is ₹5 lakh or less, an All-Citizen Model subscriber may generally take the entire amount without purchasing an annuity. Depending on the available operational options, the amount may be received as a lump sum or through another PFRDA-approved payout facility.

The ₹5 lakh limit refers to the value of the complete Tier I corpus at exit. It is not an annual withdrawal allowance.

Choosing full withdrawal also means that no pension will arise from an NPS annuity because no part of the corpus is being used to purchase one.

What Happens When the Corpus Exceeds ₹5 Lakh?

If the corpus is more than ₹5 lakh and the exit is premature, the normal 20:80 structure applies:

• Up to 20% may be withdrawn as a lump sum.
• At least 80% must be used to purchase an annuity.

For example, if the accumulated corpus is ₹10 lakh, the subscriber may take up to ₹2 lakh as a lump sum. At least ₹8 lakh would ordinarily need to be used for purchasing an annuity from an empaneled Annuity Service Provider.

This example explains the regulatory allocation only. It does not estimate the pension amount. Actual annuity income depends on the subscriber’s age, selected annuity option, prevailing rate and features such as spouse pension or return of purchase price.

Normal Exit Rules for Non-Government Subscribers

A normal exit is treated more flexibly. Under the revised All Citizen Model framework, a subscriber may become eligible for normal exit after attaining age 60 or completing 15 years of subscription.

For a corpus of up to ₹8 lakh, 100% may generally be taken using a lump sum, Systematic Lump Sum Withdrawal, Systematic Unit Redemption or another approved option.

Where the corpus is above ₹8 lakh but does not exceed ₹12 lakh, up to ₹6 lakh may be taken as a lump sum. The remaining amount may be handled through Systematic Unit Redemption for at least six years or used to purchase an annuity, subject to the applicable process.

For any corpus size, the subscriber may generally take up to 80% as a lump sum and use at least 20% to purchase an annuity.

The latest All Citizen Model summary is available on the official PFRDA NPS page.

Withdrawal Permission and Tax Exemption Are Different

An important distinction is often missed: PFRDA withdrawal rules decide how much may be withdrawn, while income-tax law decides how much is tax-exempt.

Although the revised NPS framework may permit a lump-sum withdrawal of up to 80% in certain normal-exit situations, the tax exemption historically available for an NPS lump-sum exit is limited to the percentage specified under income-tax law. Any withdrawal above the tax-exempt portion may have tax consequences.

The amount used to purchase an annuity is not generally taxed at the time of purchase. However, pension received from the annuity is normally taxable in the recipient’s hands according to the applicable income-tax rules.

Subscribers should obtain current tax advice before choosing between the available payout options.

Partial Withdrawal Is Not an Exit

A partial withdrawal allows a subscriber to access part of their own contributions without closing the NPS account.

Subject to the prescribed conditions, a subscriber may withdraw up to 25% of their own contributions—not 25% of the total corpus—for specified purposes. These may include eligible medical treatment, education or marriage of children, purchase or construction of a residential property, disability-related needs or starting an eligible venture.

Under the revised framework, partial withdrawals before age 60 may be permitted up to four times, generally with the required interval between withdrawals. Separate rules can apply after age 60.

Eligibility permitted purpose and documentary requirements should be checked before submitting a request.

What Happens on the Subscriber’s Death?

For a non-government subscriber, the accumulated pension wealth may generally be paid to the nominee or legal heirs. They may also choose an annuity or another approved payout method where permitted.

Government-sector death cases can operate differently, particularly where family pension or pensionary relief is available under service rules. A government employee should not apply the All Citizen Model death rules without checking the employer’s provisions.

Keeping nomination information updated is essential. Marriage or other changes in family circumstances may affect the validity or suitability of an earlier nomination.

Can NPS Continue Beyond Age 60?

An eligible subscriber does not necessarily need to close NPS immediately at age 60. Continuation can generally be available up to age 75, subject to the current framework.

This may suit someone who does not yet need the money, but continuation also leaves the corpus exposed to investment movements. The decision should consider retirement income, other assets, risk tolerance and near-term cash requirements.

Before Requesting an Exit

Subscribers should confirm:

1. Whether the exit is premature or normal.
2. Whether the account is under government or non-government NPS.
3. The current value of the Tier I corpus.
4. The minimum annuity requirement.
5. Available lumpsum, SLW and SUR options.
6. Tax treatment of the selected withdrawal.
7. Bank, KYC and nomination details.

NPS rules are detailed because the scheme is intended to create retirement income. An exit decision should therefore be based on current PFRDA regulations, not an old infographic or threshold.

Disclaimer: This article provides general educational information and does not constitute investment, pension, tax or legal advice. NPS rules, tax treatment and operational procedures may change. Subscribers should verify current requirements through PFRDA, their Central Recordkeeping Agency and an appropriately qualified professional before submitting an exit request.