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Investing in financial instruments for retirement planning is an important objective. The National Pension Scheme(NPS) is one of the most popular and beneficial retirement planning options. It is a safe option that also provides tax* benefits. You can open the NPS account, accumulate the required funds and withdraw them online. It involves a few simple steps. Here is a detail about the NPS withdrawal and the online process.
Before we get started, let us understand what the NPS investment means.
What is the National Pension Scheme?
National Pension Scheme is a pension scheme initiated by the Government of India. According to the NPS scheme, you will have to open an NPS account and save a fund annually for the long term. The fund accumulated in the account becomes partially withdrawable at maturity when you retire. And you have to utilise the remaining portion of the NPS corpus to purchase an annuity plan to receive a regular income post-retirement.
There are two types of NPS accounts: Tier I and Tier II. You can invest in one or both accounts based on your financial requirements. Investing in Tier I is compulsory, and Tier II is voluntary. However, to invest in Tier II, you must have invested in Tier I.
Withdrawal From NPS
The NPS withdrawal process is governed by certain rules based on the type of NPS account and the time of withdrawal during the entire term. As per the current guidelines, the withdrawal rules apply predominantly to the Tier I NPS. Here is a detail about the NPS withdrawal rules.
Tier I NPS Withdrawal
The NPS Tier I withdrawal rules are based on the type of withdrawal made and the amount. There are three types of withdrawal:
- Premature withdrawal - The NPS scheme matures when you are 60 years old. If you need to make a withdrawal before maturity, it has to be after 3 years of completion and is referred to as the Premature Exit. The rules governing premature withdrawal are as follows:
- You can withdraw 20% of the accumulated fund. The remaining 80% of the fund has to be invested in an annuity plan.
- The withdrawal and the annuity benefits are taxable*.
- You can withdraw 20% of the accumulated fund. The remaining 80% of the fund has to be invested in an annuity plan.
- Partial withdrawal - Partial withdrawals refer to making withdrawals at any time during the policy tenure. Here are the rules that govern NPS partial withdrawal:
- You can make 3 partial withdrawals from the NPS Tier I account during the scheme term.
- It is applicable after 3 years of opening the account.
- The reason for withdrawal can be for accomplishing certain important money goals such as a medical emergency, your child's marriage, a child's higher education, etc.,
- The withdrawals should not exceed 25% of your contribution to the NPS Tier I account.
- The partial withdrawals are tax*-free.
- You can make 3 partial withdrawals from the NPS Tier I account during the scheme term.
- Withdrawal at maturity - The NPS investment matures when you attain 60 years of age. You can make the withdrawal request at this stage based on the following NPS maturity rules:
- You can withdraw to the extent of 60% of the accumulated corpus. And it is tax*-free.
- The remaining 40% has to be mandatorily invested in an annuity plan for the pension after retirement. The pension is taxable* based on the applicable tax* slab for the financial year.
- You can withdraw to the extent of 60% of the accumulated corpus. And it is tax*-free.
NPS Withdrawal Online Process
Now that we have read through the NPS withdrawal rules, let us understand the online process to do the same. Here is a detail about the steps:
- Visit the official website of the NSDL - CRA.
- Provide the user ID and the password to log in.
- Find the tab mentioned as 'Transact Online' and choose the option ' withdrawal.'
- Select the 'Partial Withdrawal from Tier I' option.
- Provide the reason for withdrawal and the percentage of the fund, and click on 'Submit.'
On successful submission, a form is generated for your reference. You must carry that form along with the following documents to the NPS Nodal Office for further processing.
- PAN card
- Bank account details such as passbook, cancelled cheque, etc.,
- KYC documents
- Filled advance stamp receipt cross-signed on the revenue stamp by the NPS account holder.
- The request cum undertaking form if it is a maturity withdrawal.
You can also process the NPS Tier I withdrawal offline by downloading the necessary forms and submitting them to the associated Nodal Officer with the required documents.
NPS Tier 2 Withdrawal can also be processed online similarly by logging into the CRA system by choosing the appropriate options. You can also make the withdrawal request offline by providing the necessary forms and submitting them to the associated Nodal Officer.
The NPS scheme helps you save funds for the future and provide tax* benefits. It will help you lead a happy and peaceful retirement if you have done adequate financial planning. However, if you are the sole earning member of your family, securing their future in your absence becomes extremely important.
Conclusion
Withdrawal in the NPS scheme is one of the most important benefits of investing in it for the long term. The simple process and the applicable tax* benefits make it more beneficial. You can withdraw funds from the NPS Tier I account as a partial withdrawal 3 times during the policy tenure and at maturity. You can also apply for a premature exit if the situation demands it.
There are certain rules and a defined online process for applying for withdrawal. It is simple and cost-efficient. The Tier II NPS withdrawal is also simple and can be accessed online or offline. So, ensure understanding of the rules, procedures and documents required for a smooth and convenient process!
L&C/Advt/2022/Dec/3401
