There are two sorts of accounts beneath the National Pension System (NPS) – Tier-1 and Tier-2. While there are no restrictions on withdrawal from the Tier-2 NPS Accounts, there are restrictions on Tier-1 Accounts.
Withdrawal through exit
Lump sum withdrawal up to 60 per cent of the retirement corpus is permitted at the time of superannuation or attainment of 60 years of age and the rest 40 per cent is to be used to acquire an annuity program from any IRDAI-regulated insurance coverage business.
However, in case of premature withdrawal, lump sum withdrawal of only 20 per cent of the retirement corpus is permitted, though the rest 80 per cent wants to be invested in an annuity program.
In case of death of the subscriber and in case the worth of the retirement corpus is much less than or equal to Rs 5 lakh, one hundred per cent lump sum withdrawal is permitted.
Partial withdrawal
The subscribers of NPS Tier-1 Account could also make partial withdrawal up to 25 per cent of the contributions made by themselves – excluding employers contributions, if any – right after 10 years from the date of joining in standard circumstances and right after 3 years from the date of joining beneath some certain situations.
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Partial withdrawals could be made for the factors like –
a) Higher education of children
b) Marriage of children
c) Purchase or building of a residential residence or flat
d) Treatment of specified illnesses
Only a maximum of 3 partial withdrawals are permitted through the complete tenure of NPS subscription. The gap involving two withdrawals need to be at least 5 years, except in case of specified illnesses or in case of death of the subscriber.
While applying for withdrawal, a subscriber has to mention the percentage of withdrawal, objective of withdrawal (along with prof) and bank account facts (along with proof).
Penny drop course of action
To guarantee that right facts of an active bank accounts are supplied by the subscribers at the time of withdrawals, Central Recordkeeping Agency (CRA) KFintech (KCRA) has adopted the penny drop course of action. Under this, Re 1 is transferred to a subscriber’s registered bank account to verify the transaction is completed effectively.
“In penny drop process, the bank account will be verified by making the ‘test transaction’ by dropping Re 1 in subscriber’s registered bank account. KFintech CRA (KCRA) will check if the bank details provided by the NPS subscriber is active and valid and the name in bank account is same as in PRAN. Once the User captures the withdrawal request, KCRA will check the details instantly. If there is success, User will be allowed to complete his/her withdrawal request. However, if the penny drop transaction fails or there is a mismatch in name, User will not be allowed to capture the withdrawal request. Subscriber has to provide the correct bank details to submit his/her withdrawal request,” mentioned Sreekanth Nadella, CEO, KFin Technologies.
However, the penny drop will make withdrawals a bit high priced as the subscribers have to spend for the course of action.
“Penny drop is a chargeable transaction and charges are recovered from the subscriber’s NPS Account. KCRA is the first CRA to implement the penny drop process in Partial Withdrawal and Bank details updating process,” mentioned Nadella.