NPS withdrawal rules: Partial withdrawal rules to help those purchasing or constructing houses for the first time; Check details

NPS partial withdrawal: The Pension Fund Regulatory and Development Authority (PFRDA) issued a master circular last week highlighting the guidelines and clauses for the partial withdrawal of funds invested under the National Pension System (NPS). These provisions are slated to take effect from February 1, 2024.

The latest regulations highlight that partial withdrawals are allowed only for specific purposes. One of the changes marked in the recent PFRDA circular is linked to the conditions for partial withdrawal. The pension body has clarified that subscribers can make partial withdrawals for the purchase or construction of the first house only.

If they already own a house, subscribers will not be allowed to go for partial withdrawals. Earlier, subscribers could make partial withdrawals to purchase or construct a house in their name or jointly with their spouse.  

"Purchase or construction of a residential house or flat in the subscriber's own name or in joint name with their legally wedded spouse. However, if the subscriber already owns a residential house or flat (other than ancestral property), no withdrawal shall be permitted," the PFRDA circular noted.

As per the new rules, subscribers can go for partial withdrawals, if:

> Higher education expenses for the subscriber's children. This is also applicable to legally adopted children.
> Marriage expenses for the subscriber's children. Also applicable to legally adopted children.
> Purchase or construction of a residential house or flat in the subscriber's own name or in joint name with their legally wedded spouse. However, if the subscriber already owns a residential house or flat (other than ancestral property), no withdrawal shall be permitted.
>  Treatment of specified illnesses, including hospitalization and treatment expenses for diseases such as cancer, kidney failure (End Stage Renal Failure), primary pulmonary arterial hypertension, multiple sclerosis, major organ transplant, coronary artery bypass graft, aorta graft surgery, heart valve surgery, stroke, myocardial infarction, coma, total blindness, paralysis, accidents of serious/life-threatening nature and Covid-19.
> Medical and incidental expenses arising from the disability or incapacitation suffered by the subscriber.
> Expenses for skill development or re-skilling.
> Expenses incurred by the subscriber for establishing their venture or any start-up.

Elaborating on this, Adhil Shetty, CEO, BankBazaar.com said: "Withdrawals are limited to three times during the tenure of the NPS account, with a gap of five years between each withdrawal. The withdrawal can only amount to a maximum of 25% of your contributions. Also, partial withdrawals are allowed only for specific purposes. One of the changes in the recent PFRDA partial withdrawal norms is related to the conditions for partial withdrawal. Originally, it was possible for subscribers to make partial withdrawals to purchase or construct a house in their name or jointly with their spouse. However, now there are additional stipulations. Now you can make a partial withdrawal for the purchase or construction of only your first house. If you already have a house, you will not be allowed to use your NPS investment for the same. The idea is that NPS is a retirement plan that should accrue over time and should not be used for other investments."

He added: "NPS is a long-term pension scheme that allows you to build a corpus so that you have a lumpsum amount as well as a pension on retirement. The size of a corpus depends on the time for which it remains invested. So, there are strict rules around early withdrawal."

Guidelines for partial withdrawals:

> NPS subscribers must have been members of the NPS for a minimum of three years from the date of joining.
> The partial withdrawal amount should not exceed one-fourth of the subscriber's total contributions in their pension account.
> Subscribers are allowed a maximum of three partial withdrawals during their entire subscription tenure under the NPS.
> For subsequent partial withdrawals, only incremental contributions made by the subscriber from the date of the previous partial withdrawal shall be allowed.

How funds are invested in NPS

Under the NPS, subscribers can select how their funds are allocated across various asset classes, referred to as ECG. ECG stands for Equity (E), Corporate Debt (C), Government Securities (G), and Alternative Investment Funds (A). Each asset class presents a unique risk-return profile and provides access to diverse market instruments.

Subscribers can either choose Auto or Active choice investment options in NPS. Under the active choice option, subscribers get to decide the proportion of each asset class in their portfolio.

Under the auto choice option, the asset allocation is done automatically based on subscriber's age and risk profile. The maximum allocation to Equity is 75 per cent under both options.

Also read: NPS tax benefits: How you can claim tax deductions for NPS under old, new income tax regimes

Also read: Interim Budget 2024: Will FM Sitharaman extend NPS benefits to new tax regime? Here's what we know