What is the National Pension System (NPS)?
The National Pension System (NPS) is a popular retirement savings scheme in India that offers individuals a chance to build a substantial corpus for their post-retirement years. While the primary goal of NPS is long-term wealth creation, the system also allows for partial withdrawals under specific circumstances. In this article, we will delve into the details of NPS partial withdrawal, including when you can apply for it and how to go about the application process. Understanding these aspects will help you make informed decisions about managing your NPS account effectively.
Understanding NPS Partial Withdrawal
NPS partial withdrawal refers to the option provided to NPS investors to withdraw a portion of their accumulated funds before reaching the retirement age. This facility is primarily intended to meet certain financial needs such as medical emergencies, higher education expenses, or purchasing a residential property. It is important to note that the partial withdrawal option is subject to certain conditions and limitations, which we will discuss further.
Partial withdrawal for marriage expenses: In case of marriage expenses of the subscriber, they can withdraw up to 50% of their contributions. This withdrawal is allowed only once and should be made at least three years before the superannuation age or retirement age. You can contact the recruitment agency to follow the right procedure for withdrawal.
Eligibility Criteria for NPS Partial Withdrawal:
To apply for NPS partial withdrawal, you must meet certain eligibility criteria. Generally, early exit option in NPS is permitted after completing ten years of active contribution to the NPS. However, specific circumstances such as critical illness or higher education can also allow partial withdrawal before the completion of ten years. The maximum limit for partial withdrawal is 25% of the subscriber’s own contributions, subject to applicable conditions and regulations. Also, this partial withdrawal option can be availed only after the completion of 3 years of account opening.
Types of Partial Withdrawal under NPS:
Under the NPS, there are different types of partial withdrawal options available based on specific situations. These include:
1. Partial withdrawal for higher education: NPS investors can withdraw up to 25% of their contributions for the higher education of their children or themselves. This withdrawal can be made a maximum of three times during the tenure of the NPS account with an interval of 5 years each.
2. Partial withdrawal for marriage expenses: In case of marriage expenses of the subscriber, they can withdraw up to 50% of their contributions. This withdrawal is allowed only once and should be made at least three years before the superannuation age or retirement age.
3. Partial withdrawal for treatment of critical illnesses: In case of specific critical illnesses, investors can withdraw up to 25% of their contributions. A certificate from a registered medical practitioner is required to avail of this facility.
How to Apply for NPS Partial Withdrawal?
To apply for NPS partial withdrawal, follow these steps:
1. Visit the official NPS website or log in to your NPS account.
2. Navigate to the partial withdrawal section and select the appropriate reason for withdrawal.
3. Fill in the required details, such as the amount to be withdrawn and supporting documents.
4. Submit the withdrawal application online.
5. Once your application is processed and approved, the requested amount will be credited to your registered bank account.
This partial withdrawal option can also be used for constructing a house and starting a own new business/venture. But the required documents have to be submitted inorder to become eligible for such partial withdrawals.
If you’re yet to start an NPS account let’s first understand the other benefits of NPS.
- Tax Benefits:
One of the key benefits of the NPS is the tax advantages it offers. The scheme provides a dual tax benefit, where contributions made towards the NPS are eligible for tax deductions under Section 80C of the Income Tax Act, up to a specified limit. Additionally, an exclusive deduction of up to 10% of the salary (for salaried individuals) or gross total income (for self-employed individuals) is available under Section 80CCD(1B) over and above the Section 80C limit. This results in significant tax savings for NPS investors, reducing their overall tax liability.
- Long-Term Wealth Creation:
The NPS is designed to encourage long-term wealth creation, providing you with an opportunity to accumulate a substantial retirement corpus. By investing in a mix of equity, corporate bonds, and government securities, the NPS aims to deliver optimal returns over an extended period. The power of compounding, coupled with disciplined contributions, enables NPS investors to build a sizable retirement fund, ensuring financial independence during their post-employment years. To understand the working of NPS, you can try using an online NPS calculator.
What is NPS calculator?
The National Pension System (NPS) calculator is a valuable online tool that helps you estimate the potential retirement corpus they can accumulate through their NPS contributions. By inputting specific details such as age, investment amount, and expected returns, you can gain insights into the growth of their retirement savings over time. In this blog post, we will delve into the details of the NPS calculator and its significance in retirement planning.
Flexibility and Portability:
Flexibility and portability are notable advantages of the NPS. Investors have the freedom to choose their investment options, allowing them to align their investments with their risk tolerance and investment objectives. The NPS offers two investment choices: Active Choice, where investors decide the asset allocation, and Auto Choice, which dynamically adjusts the asset allocation based on the subscriber’s age.
Moreover, the NPS is portable across employers and locations. It means that if a subscriber changes jobs or moves to a different city, they can seamlessly continue their NPS account without any disruption. This portability ensures that investors can maintain the continuity of their retirement savings and make contributions conveniently throughout their working life.
Upon reaching the age of retirement, NPS investors can utilize the accumulated corpus to secure a regular income stream through the purchase of an annuity. The annuity options provided by various insurance companies allow you to choose the most suitable payout plan based on their financial requirements. The annuity payments provide a stable income flow during retirement, ensuring a comfortable lifestyle and fulfilling post-retirement aspirations.
Transparency and Governance:
The NPS operates with high levels of transparency and efficient governance. The scheme is regulated by the Pension Fund Regulatory and Development Authority (PFRDA), which ensures the integrity and fairness of the system. The PFRDA closely monitors the functioning of the pension fund managers, custodians, and other intermediaries involved in managing the NPS funds. This regulatory oversight promotes investor confidence and safeguards the interests of NPS investors.
NPS partial withdrawal offers flexibility to investors, allowing them to access a portion of their savings when needed. However, it’s important to understand the eligibility criteria and the specific conditions for each type of withdrawal. By following the steps outlined above, you can easily apply for NPS partial withdrawal and manage your financial needs effectively while ensuring the long-term growth of your NPS corpus. Remember to stay informed about the latest updates and guidelines related to NPS partial withdrawals to make the most of this facility.