Savings
NPS exit rules: 80/20, 60/40, corpus thresholds and partial withdrawals
Current NPS exit rules differ by sector, exit type and corpus. Learn the 80/20 and 60/40 rules, ₹8 lakh and ₹12 lakh bands, premature exit and tax mismatch.
Your NPS exit depends on sector, exit type and accumulated pension wealth (APW). At a normal exit above ₹12 lakh, a non-government subscriber may take up to 80% as lump sum and must annuitise at least 20%; a government subscriber may take up to 60% and must annuitise at least 40%.
Ordinary government and non-government Tier I exits use separate ₹8 lakh and ₹12 lakh bands, while special cohorts, premature exits and partial withdrawals have different limits. Tax law is a second filter: permission to withdraw 80% does not mean the entire 80% is tax-exempt.
Identify your sector and exit event first
“NPS withdrawal” can mean four different things: normal exit, premature exit, partial withdrawal while keeping the account, or payment following death. Applying one event’s percentage to another produces the wrong answer.
For an All Citizen or other non-government subscription not arising from employment, normal exit becomes available after 15 years of subscription or on attaining 60 years of age, whichever is earlier, under the current PFRDA framework. The 15-year route does not apply to a scheme subscribed to because of employment. Government and employment-linked corporate exits therefore need the applicable superannuation or retirement event checked separately. Continuation and deferment choices can extend account management up to age 85, subject to the regulations.
This article primarily addresses Tier I exit and partial withdrawal. Tier II has a different liquidity rule: subject to the NPS Tier II Tax Saver lock-in, a subscriber may ordinarily withdraw it in full or part at any time without a numerical withdrawal limit. Tier II is closed when the associated Tier I account is closed.
Start by downloading the latest central recordkeeping statement and recording APW, your sector, date of joining, age and planned exit date. The NPS calculator can illustrate accumulation, but it does not determine regulatory eligibility or the tax result.
Ordinary Tier I normal exit uses three corpus bands
For ordinary government and non-government Tier I accounts, the December 2025 changes created threshold-based flexibility alongside the sector-specific percentage.
| APW at normal exit | Current permitted structure |
|---|---|
| ₹8 lakh or less | Option to withdraw up to 100% through the permitted lump-sum or systematic routes; the applicable sector lump-sum/annuity split may be chosen instead |
| More than ₹8 lakh and up to ₹12 lakh | Either up to ₹6 lakh as lump sum with the balance through systematic unit redemption for at least six years or annuity; or the sector split of government 60/40 or non-government 80/20 |
| More than ₹12 lakh: government | Up to 60% lump sum; at least 40% annuity |
| More than ₹12 lakh: non-government | Up to 80% lump sum; at least 20% annuity |
“Up to” matters. A subscriber may choose more annuity than the minimum if lifelong income is the objective. The annuity purchase is irreversible subject to the provider’s terms, so compare payout frequency, joint-life treatment, return of purchase price and inflation risk before selecting it.
At more than ₹8 lakh and up to ₹12 lakh, the ₹6 lakh option spreads the residual amount through systematic unit redemption for at least six years or places it into annuity. It is an alternative to the applicable sector split, not a universal ₹6 lakh cap: a non-government subscriber may instead choose up to 80% lump sum with at least 20% annuity, while a government subscriber may choose up to 60% with at least 40% annuity. Do not confuse systematic redemption with an annuity; investment exposure, payment mechanics and guarantees differ.
These bands do not cover every NPS cohort. Under the All Citizen rules, a subscriber who joined NPS on or after age 60 has no vesting requirement and may normally exit at any time; APW up to ₹12 lakh can use the full-withdrawal option, while the 80/20 structure also remains available. NPS-Lite and Swavalamban use a ₹2 lakh full-withdrawal threshold: above it the normal split is 60/40, while the premature split is 20/80. Identify the model before applying the table.
Use NPS versus PPF only for product comparison before investing. Do not map NPS withdrawal percentages onto EPF, EPS or EDLI, which are separate statutory benefits. Once an NPS exit is due, the applicable PFRDA band governs the available distribution.
Premature exit is still annuity-heavy
For an ordinary government or non-government Tier I account, a premature exit is closure before the normal-exit condition. The current general structure allows no more than 20% of APW as lump sum and requires at least 80% to purchase annuity. If APW is ₹5 lakh or less, the regulations permit full withdrawal instead of compulsory annuitisation. NPS-Lite and Swavalamban instead use the ₹2 lakh threshold described above.
For All Citizen subscribers, PFRDA’s March 2026 FAQ says the old minimum five-year lock-in for premature exit has been removed. That makes the exit accessible earlier; it does not turn Tier I into an ordinary savings account. Closing early can crystallise a market loss, stop retirement compounding and force annuity purchase at the prevailing terms.
Before choosing premature exit, test whether a permitted partial withdrawal can meet the need while preserving the account. Also compare emergency sources outside retirement savings. Products in post-office savings schemes have their own liquidity rules and are not substitutes automatically.
Partial withdrawal means own contributions, not corpus
A partial withdrawal keeps the Tier I account open. It becomes available after three years from joining and is restricted to purposes specified in the regulations. The first withdrawal is capped at 25% of the subscriber’s own contributions. Employer or government contributions and investment appreciation are not part of that base. These limits do not govern ordinary Tier II withdrawals.
Suppose you have contributed ₹4 lakh personally and the account’s total APW—including employer contributions and returns—is ₹9 lakh. The initial percentage ceiling is ₹1 lakh, not ₹2.25 lakh. The permitted purpose and other conditions must still be satisfied.
For a later partial withdrawal, the 25% calculation applies to eligible own contributions made after the previous withdrawal; unused entitlement is carried in the manner prescribed. Before age 60 or superannuation or retirement, whichever is later, up to four partial withdrawals are allowed with at least four years between withdrawals. From that later threshold, there is no fixed numerical ceiling, but at least three years must separate withdrawals, and the facility runs only within the continuation framework up to age 85.
Permitted purposes currently include children’s higher education or marriage; qualifying purchase or construction of a residential house; medical treatment or hospitalisation for the subscriber, spouse, children or parents; and disability or incapacitation expenses. They also include settlement of a financial obligation availed from a regulated financial institution against a lien or charge marked on the NPS individual pension account. Housing has ownership restrictions. Preserve invoices, declarations and lien evidence required by the recordkeeper.
Systematic options change timing, not the rule
The regulations offer ways to phase an eligible lump-sum component rather than taking it immediately. A systematic lump-sum withdrawal can schedule the permitted lump-sum portion, while systematic unit redemption is used in the prescribed threshold cases and redeems units over time.
Phasing can help with spending discipline and market timing, but money left invested remains exposed to the selected asset mix and charges. It is not a guaranteed bank deposit. Ask whether the facility continues proportionately across funds, whether instructions can be changed, and what happens to the remaining units on death.
Continuation keeps the NPS account active beyond the normal-exit point; deferment postpones a permitted component. These choices have deadlines and operational forms. Record the chosen end date and nominee details rather than assuming the account will automatically follow the most tax-efficient route.
Tax law does not mirror the new 80% ceiling
PFRDA regulates how much may be distributed or must be annuitised. The Income-tax Act determines what is exempt. The Income Tax Department’s current guidance describes the section 10(12A) exemption on account closure as up to 60% of the total amount payable.
Therefore, a non-government subscriber taking the permitted 80% lump sum above the ₹12 lakh band should not call the whole amount tax-free. The explicit closure exemption covers up to 60%; the tax treatment of the additional amount needs current professional advice for the relevant assessment year. This mismatch is material when comparing 60/40 with 80/20.
The amount used to purchase annuity is exempt at purchase under the cited guidance, but later annuity income is taxable when received. Section 10(12B) describes a qualifying partial payment to an employee as exempt up to 25% of that employee’s contributions. Section 10(12BA) separately addresses payment from an NPS account opened for a minor by a parent or guardian from assessment year 2026–27. A self-employed subscriber should not assume that the employee wording creates the same exemption. Run expected taxable income through the income-tax calculator, then confirm the result against current law.
Use an exit worksheet before submitting the request
Write down APW, sector and whether the event is normal, premature or partial. Apply the correct threshold and minimum annuity first. Then compare the allowed payout methods, obtain annuity quotations, identify the tax-exempt amount separately and reserve for any uncertain tax.
Check permanent retirement account details, bank account, nomination, know-your-customer status and contribution history before initiating exit. Resolve mismatches while the account is active. For a partial withdrawal, keep proof of purpose and calculate the cap from your own contributions rather than the statement’s headline corpus.
Finally, choose for retirement income rather than the largest day-one cheque. The 80/20 rule gives a non-government subscriber flexibility; the 60/40 rule retains a larger government-sector annuity floor. Neither percentage decides whether lump sum, systematic withdrawal or annuity best fits your expenses, dependants, other pensions and longevity risk.
Common questions
Can a non-government NPS subscriber withdraw 80% tax-free at normal exit?
The exit regulations permit a non-government subscriber with pension wealth above ₹12 lakh to take up to 80% as a lump sum and use at least 20% for annuity. That does not make the whole 80% tax-exempt. The Income Tax Department describes the section 10(12A) closure exemption as up to 60% of the total amount. Treat the regulatory permission and tax exemption separately and obtain advice on any lump sum above 60%.
What is the normal NPS exit rule for a government subscriber?
For pension wealth above ₹12 lakh, the government-sector normal-exit rule allows up to 60% as lump sum and requires at least 40% for annuity. At more than ₹8 lakh and up to ₹12 lakh, the subscriber may instead take up to ₹6 lakh with the balance through the prescribed systematic-unit-redemption or annuity route, or retain the ordinary government-sector split of up to 60% lump sum and at least 40% annuity. At ₹8 lakh or less, a full-withdrawal option is available.
Can I withdraw the whole NPS corpus when it is ₹8 lakh or less?
For an ordinary government or non-government Tier I normal exit, the current regulations permit a subscriber with accumulated pension wealth of ₹8 lakh or less to take the entire amount using the allowed lump-sum or systematic route. NPS-Lite and Swavalamban instead use a ₹2 lakh full-withdrawal threshold. A regulatory exit concession is not a statement that every rupee is automatically exempt from tax or that an active Tier I account can be emptied at any time.
How much can I take in an NPS partial withdrawal?
After the initial three-year condition, the first partial withdrawal is capped at 25% of the subscriber’s own contributions—not 25% of market value. A later withdrawal is based on eligible own contributions made after the previous withdrawal, with unused entitlement carried as provided by the regulations. Frequency, interval and permitted-purpose rules also apply.
Is there still a five-year lock-in before premature exit from All Citizen NPS?
The March 2026 PFRDA All Citizen FAQ says the earlier five-year minimum lock-in for premature exit has been removed. Premature exit is still financially restrictive: normally no more than 20% may be taken as lump sum and at least 80% must purchase annuity, unless accumulated pension wealth is ₹5 lakh or less and the full-withdrawal concession applies.
Are NPS annuity payments tax-free?
No. The Income Tax Department’s guidance states that the amount used to purchase an annuity is exempt at exit, but pension received from the annuity is taxable in the year of receipt. Compare annuity choices using the post-tax income, survivor benefit, return-of-purchase-price option and insurer terms rather than only the initial quoted payout.
Sources
Rates and rules on this page were read directly from the following sources on the dates shown. Figures change — if you are about to act on one, confirm it at the source.
- PFRDA (Exits and Withdrawals under the NPS) Regulations, 2015, consolidated through 20 July 2026
- FAQs on Exits and Withdrawals under NPS for All Citizen Model, March 2026
- FAQs on Exits and Withdrawals under NPS for Government Sector, March 2026
- Income from salary: NPS exemptions and tax treatment
- Section 10 of the Income-tax Act: NPS exemptions