The opening and withdrawal rules of a NPS account

The National Pension System (NPS) is a long term, a retirement-oriented saving scheme which lets you create a corpus for retirement. You can opt for the scheme if you are aged between 18 and 60 years and keep contributing until you attain 60 years of age. The scheme matures at that time and gives you lifelong incomes in the form of annuities. The NPS scheme also allows flexibility in the form of premature closure and partial withdrawals. So, let’s understand how you can open an NPS account and also withdraw from the scheme before the completion of the tenure –

How to open an NPS account?

There are two ways of opening an NPS account online. These are as follows –

1. Through your bank

If your bank is registered with PFRDA and allows opening of an NPS account you can log into your net banking account and open an NPS account in your name. You can also open an NPS account through the website of your bank if you are not registered for the internet banking facility.

1. Through the online website of NPS

There is an eNPS website that also allows you to open an NPS account. You can visit the website and invest in NPS online.

Alternatively, you can also invest in the NPS scheme by visiting the branch of your bank or any other bank which is registered with PFRDA to allow NPS investments. At the branch of the bank, you can fill up an application form and deposit the contribution amount to open an NPS account.

Rules of opening NPS account

Here are some rules of opening an NPS account which you should keep in mind –

• There are two types of NPS accounts – Tier I and Tier II. Tier I is compulsory and you have to open Tier I account to invest in NPS.

• The minimum contribution in Tier I Account is INR 500 and the Tier II Account is INR 1000. Thereafter, every year, a minimum contribution of INR 1000 should be made in Tier I Account and in Tier II Account the minimum contribution needed is INR 250

• Investments into NPS accounts are eligible for tax benefits. You can claim tax benefits under Sections 80C, 80 CCD (1), 80 CCD (2) and 80CCD (1B).

How to withdraw from the NPS account?

You have two withdrawal options from the NPS account –premature withdrawal or partial withdrawal. Let’s understand each one-

1. Premature withdrawal

If you don’t want to continue the scheme till 60 years of age, you can opt for premature closure. Premature withdrawal is allowed after the completion of 10 years. On such withdrawal, you can avail 20% of the corpus in a lump sum and the remaining would be used for paying annuities. However, if the accumulated corpus is below INR 1 lakh, 100% of the corpus can be availed in a lump sum.

1. Partial withdrawal

Tier I Account is rigid and allows partial withdrawals only under specific circumstances. These circumstances include marriage, medical emergency, buying a house, etc. In such cases, you can withdraw up to 25% of the corpus in a lump sum. Partial withdrawal is allowed after the completion of three years and up to three withdrawals are allowed during the investment tenure. In the case of the Tier II Account, however, partial withdrawals are allowed without any limitations.

Rules of withdrawals

Here are some withdrawal rules which you should remember –

• The lump sum that you withdraw from the scheme is eligible for tax benefits. Such lump-sum withdrawal is a tax-free income in your hands.

• In case of death of the investor, 100% of the corpus can be withdrawn in a lump sum by the nominee

Thus, operating an NPS account and withdrawing from it is quite a simple affair. You can invest online or offline as per your preference and can also withdraw funds when you need it. So, open an NPS account in your name to save for retirement and also avail tax benefits on investments as well as on withdrawals.

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