NPS exit and withdrawal rules

How a central government employee takes money out of NPS: the 60:40 superannuation exit, premature exit, partial withdrawal, tax, and the death-benefit choice.

Updated 8 September 2026

The NPS exit and withdrawal rules decide how much of a National Pension System Tier-I account a subscriber may take in cash and how much must be turned into a pension. For a central government employee the split at superannuation is up to 60% as a lump sum and at least 40% to buy an annuity, and at premature exit up to 20% and at least 80%. Both proportions are fixed by the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, made by the Pension Fund Regulatory and Development Authority and overhauled by an amendment dated 12 December 2025, gazetted on 16 December 2025.

The widely reported liberalisation that lets a subscriber take up to 80% as a lump sum does not reach the government sector. It applies to the All Citizen model, the corporate sector, and individuals who join after age 60. A central government employee stays at 60% at superannuation and 20% at premature exit, and treating the 80% figure as a government entitlement is the single commonest error about the amended rules.

A second layer applies to government subscribers alone. The Central Civil Services (Implementation of National Pension System) Rules, 2021, notified on 31 March 2021, decide what the family receives if the employee dies in service or is boarded out on disablement, and they let the employee choose an assured family pension instead of the corpus. That choice is made in Form 1 at the time of joining, and the family cannot make it afterwards.

Four events take money out of Tier-I: normal exit on superannuation, premature exit before superannuation, exit on death or invalidation, and partial withdrawal during service. This article works through each for a central government subscriber, then the annuity, the tax treatment under the Income-tax Act, 2025, the separate exit regime for a Unified Pension Scheme subscriber, Tier-II redemptions, and the exit process itself. The National Pension System article covers the scheme and the contribution phase, and the NPS tax benefits article the deductions during service.

The four exit routes compared

The route decides the lump sum, so it is worth fixing before anything else. The table below sets out the four for a central government Tier-I subscriber, on the position amended by the PFRDA amendment of 12 December 2025.

Route	Lump sum	To annuity	Whole corpus payable if	Instrument
Superannuation	Up to 60%	At least 40%	Corpus up to Rs. 8 lakh	2015 Regulations, as amended 12 December 2025
Premature exit	Up to 20%	At least 80%	Corpus up to Rs. 5 lakh	2015 Regulations, as amended 12 December 2025
Death or invalidation in service	Up to 20% to the family, or the family pension instead	At least 80%	Corpus up to Rs. 8 lakh	CCS (Implementation of NPS) Rules, 2021, Rules 10 and 20
Partial withdrawal in service	Up to 25% of own contributions	Nil, the account continues	Not applicable	2015 Regulations, as amended 12 December 2025

The death route is the one that does not turn on arithmetic. Where the employee opted for the CCS pension rules in Form 1, the corpus proportions in the first three columns never come into play at all, because the family draws an assured family pension and the corpus is unwound instead.

Normal exit on superannuation

At superannuation, a central government employee takes up to 60% of the accumulated pension wealth as a lump sum and at least 40% buys an annuity. The 60:40 base split is unchanged by the amendment of 12 December 2025, which altered the small-corpus relief and the phasing around it rather than the proportions themselves.

The threshold below which the whole corpus can be taken in cash, with no annuity, was raised from Rs. 5 lakh to Rs. 8 lakh for a government subscriber. A middle band was added above it. The revised slabs are:

Corpus at superannuation	What a government subscriber may do
Up to Rs. 8 lakh	Take 100% as a lump sum, or phase it, or the normal 60:40
Over Rs. 8 lakh and up to Rs. 12 lakh	Up to Rs. 6 lakh as a lump sum, the balance in periodic redemption over at least 6 years or as annuity, or the normal 60:40
Over Rs. 12 lakh	Up to 60% lump sum, at least 40% annuity

An employee retiring with a Tier-I corpus of Rs. 90 lakh therefore takes up to Rs. 54 lakh in cash and annuitises at least Rs. 36 lakh. An employee retiring with Rs. 7.4 lakh takes the entire Rs. 7.4 lakh, because the corpus is inside the Rs. 8 lakh threshold and no annuity is required. An employee retiring with Rs. 10 lakh sits in the middle band: up to Rs. 6 lakh in cash, with the remaining Rs. 4 lakh either annuitised or drawn down in periodic redemptions spread over at least 6 years.

The lump-sum portion need not be taken in one payment. The Systematic Lump Sum Withdrawal facility, introduced by PFRDA Circular No. PFRDA/2023/30/SUP-CRA/10 dated 27 October 2023, lets a subscriber draw it in automated instalments, monthly, quarterly, half-yearly or yearly, up to the maximum age. The facility is available at superannuation and at premature exit, and it is not available on exit due to death.

Deferment and continuation to age 85

A subscriber may defer both the lump sum and the annuity purchase, and may keep contributing, up to age 85. The amendment of 12 December 2025 raised that ceiling from 75, and it made continuation automatic: the earlier requirement to give 15 days’ notice before superannuation was removed, so an account that is not exited simply carries on.

Deferment is a live investment decision rather than paperwork. The corpus stays invested in the chosen pension fund and scheme, so the units continue to gain or lose value, and the annuity is eventually bought at whatever rate the empanelled provider is quoting on the later date. A subscriber who defers is betting that the combination of market returns and annuity rates on the deferred date beats the position at 60, and the annuity article sets out how the rate is arrived at.

Deferment does not extend the tax exemption indefinitely. The exclusion under serial 6 of the Table in Schedule II to the Income-tax Act, 2025 attaches to the payment on closure or on opting out, so it applies in the tax year the deferred lump sum is actually received, up to 60% of the total amount payable at that time.

Premature exit before superannuation

Premature exit reverses the split: up to 20% as a lump sum and at least 80% to buy an annuity. It is triggered when a government employee leaves service before superannuation by resignation, voluntary retirement, or removal, and the reversed proportions exist so that most of the corpus becomes a pension rather than a payout to someone who still has working years ahead.

The small-corpus threshold on this route rose from Rs. 2.5 lakh to Rs. 5 lakh in the amendment of 12 December 2025. A government subscriber whose corpus is up to Rs. 5 lakh takes the whole amount in cash; above Rs. 5 lakh the 20:80 rule applies. An employee resigning with a corpus of Rs. 30 lakh therefore receives at most Rs. 6 lakh in hand and annuitises at least Rs. 24 lakh.

There is no separate years-of-service gate on premature exit for a government employee, because leaving service before superannuation is itself the trigger. The 15-year vesting period and the older 5-year lock-in that are often quoted alongside premature exit belong to the non-government All Citizen model, not to the government exit under the 2015 Regulations.

Death in service

On death in service the family does not have to take the corpus at all. Rule 10 of the CCS (Implementation of National Pension System) Rules, 2021 requires every NPS-covered central government servant to exercise an option, in Form 1 at the time of joining, between benefits under the CCS pension rules, meaning a family pension or extraordinary pension, and benefits from the accumulated NPS corpus. The option belongs to the employee, and the family cannot exercise it after the death.

Where no option was filed, the default under the 2021 Rules is the family pension for the first 15 years of service and the NPS benefit thereafter. The Department of Pension and Pensioners’ Welfare Office Memorandum dated 26 October 2022 sets out how the option and Form 1 are administered by the Head of Office.

Route chosen (Form 1)	What the family gets
CCS pension rules	An assured family pension or extraordinary pension; the government contribution and its returns in the corpus go back to the government, and the employee’s own share of the corpus is paid as a lump sum to the nominee
NPS corpus	Benefits from the accumulated NPS wealth under the 2015 exit rules: up to 20% as a lump sum, at least 80% to annuity, or the whole corpus where it is up to Rs. 8 lakh

Rule 20 of the 2021 Rules governs the unwinding on the CCS pension route. The government’s share of the corpus is transferred back to the government account and the employee-share corpus is paid to the nominee, or to the legal heir where there is no valid nomination. A safeguard sits alongside it: where the CCS pension option cannot take effect because no family member is eligible for a family pension, the option is treated as invalid and the NPS benefits pass to the legal heirs, so the choice cannot leave the family with nothing.

The receipt is not taxed in the nominee’s hands. Section 124(7) of the Income-tax Act, 2025 provides that an amount received by the nominee on the death of the assessee, on closure of the account or opting out of the pension scheme, is not deemed to be the nominee’s income. For most families the assured family pension is still the more valuable route, because it carries dearness relief and continues for life, which is why the Form 1 option is worth settling at the start of service rather than leaving to the default.

Exit on invalidation and disablement

Boarding out on disablement and retirement on invalidation run through the same Form 1 option as death in service, not through the ordinary premature-exit rules. Rule 10 of the CCS (Implementation of National Pension System) Rules, 2021 covers death in service, boarding out on disablement, and retirement on invalidation in one provision, so an employee invalidated out of service receives either the benefits under the CCS pension rules or the NPS corpus, according to the option already on record.

Where the CCS pension route applies, the mechanics of Rule 20 follow: the government share of the corpus and the returns on it revert to the government account, and the employee-share corpus is paid as a lump sum to the subscriber. Where the disablement is attributable to government service, the benefit is a disability pension under the CCS (Extraordinary Pension) Rules, 2023 rather than an ordinary invalid pension, and the disability and invalid pension article works through the two.

Systematic Lump Sum Withdrawal is available on this route in the same terms as at superannuation, because the facility introduced by PFRDA Circular No. PFRDA/2023/30/SUP-CRA/10 dated 27 October 2023 is barred only on exit due to death.

Partial withdrawal during service

A partial withdrawal takes up to 25% of the subscriber’s own contributions without closing the account. The employer’s contribution and the investment returns are outside the 25%, and for a second or later withdrawal only the additional own contributions made since the previous one count towards the base. The account continues, no annuity is bought, and no exit form is filed.

The eligibility conditions are three. The subscriber must have completed 3 years of membership. The amendment of 12 December 2025 raised the number of withdrawals allowed before retirement from three to four. A minimum gap of 4 years must separate one withdrawal from the next.

The permitted purposes were revised in December 2025 and are now: a child’s higher education; a child’s marriage; the purchase or construction of a first residential house, as a one-time withdrawal not available to a subscriber who already owns a house other than ancestral property; medical treatment or hospitalisation, broadened from a closed list of critical illnesses to cover the subscriber, spouse, children and parents; disability; and the settlement of a financial obligation taken against a lien on the NPS account. Two purposes were removed: skill development and self-development, and starting a business or venture. A partial withdrawal taken for either of those two is no longer permissible.

Serial 4 of the Table in Schedule III to the Income-tax Act, 2025, read with Section 11, excludes the partial withdrawal from total income, in the hands of any employee or of a parent or guardian withdrawing from a minor’s account, provided the withdrawal is made on the terms specified under the Pension Fund Regulatory and Development Authority Act, 2013 and the regulations under it, and provided the exclusion does not exceed 25% of the contributions made by the subscriber. That serial replaced Section 10(12B) of the repealed Income-tax Act, 1961 with effect from 1 April 2026.

Scope of the December 2025 liberalisation

The 80:20 option introduced in December 2025 does not apply to the government sector. It reaches the All Citizen model, the corporate sector, and individuals who join the NPS after age 60. The government sector stays on 60:40 at superannuation and 20:80 at premature exit, so a central government employee planning around an 80% lump sum is planning around the wrong figure.

The amendment did carry two changes that reach a government subscriber directly, and both are covered above: the small-corpus thresholds of Rs. 8 lakh at superannuation and Rs. 5 lakh at premature exit, and the maximum age of 85 for deferment and continued contribution.

For the subscribers the 80% does reach, the tax law has not moved with the regulator. Serial 6 of the Table in Schedule II to the Income-tax Act, 2025 excludes the payment only to the extent it does not exceed 60% of the total amount payable at closure, so the additional 20% taken in cash is charged at the slab rate. That gap does not arise for a central government employee, who is capped at 60% in the first place and whose 60% is exactly what the exclusion covers.

Annuity purchase and the government default variant

The portion of the corpus not taken in cash, at least 40% at superannuation or at least 80% at premature exit, buys an annuity from a PFRDA-empanelled annuity service provider, which is an IRDAI-registered life insurer such as LIC, SBI Life, HDFC Life or ICICI Prudential. Regulation 22 of the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015 governs the empanelment and the permitted variants, and the subscriber names the provider and the variant on the withdrawal request.

The government sector has a default variant, and it is the one that protects the family furthest: a life annuity under which 100% of the annuity continues to the spouse on the death of the subscriber, with the purchase price returned to the nominee after both. It pays a lower monthly amount than a plain life annuity on the same corpus, which is the price of the two protections. The common alternatives are a plain life annuity, a joint-life annuity without return of purchase price, and a variant with a guaranteed period.

The annuity is paid monthly to a government subscriber, and once it starts it is taxable as income under Section 124(6)(b) of the Income-tax Act, 2025. The annuity carries no dearness relief, so unlike an Old Pension Scheme pension it does not rise with the cost of living, and that difference compounds across a retirement of twenty years or more.

Tax on the exit proceeds

Up to 60% of the corpus comes out free of tax and the annuity it buys is taxed as income. The Income-tax Act, 2025 came into force on 1 April 2026 and Section 536(1) repealed the Income-tax Act, 1961, so the operative citations for a retirement in the financial year 2026-27 are in the 2025 Act, not in the Sections 10(12A) and 10(12B) that most summaries still quote.

Receipt at or before exit	Provision, Income-tax Act 2025	Treatment
Lump sum on closure or opting out	Schedule II, Table serial 6, read with Section 11	Excluded, to the extent it does not exceed 60% of the total amount payable at that time
Partial withdrawal during service	Schedule III, Table serial 4, read with Section 11	Excluded, up to 25% of the subscriber’s own contributions
Amount used to buy the annuity	Section 124(9)	Not treated as received in that tax year, so not charged
Annuity pension after exit	Section 124(6)(b)	Charged at slab rates in the year of receipt
Amount received by the nominee on death	Section 124(7)	Not deemed to be the nominee’s income
Final withdrawal by a UPS subscriber	Schedule II, Table serials 15 and 16	Excluded, up to 60% of the individual corpus, and the service-linked lump sum

Section 124(9) is the provision that keeps the annuitised 40% from being taxed twice. Without it, the whole corpus would be a receipt at exit and the annuity a second receipt every month afterwards; because the amount used to purchase the annuity plan in the same tax year is not treated as received, only the stream is charged. The income tax for pensioners article carries the slab position on that stream, and NPS tax benefits the deductions during service.

Exit under the Unified Pension Scheme

A Unified Pension Scheme subscriber exits under a different set of regulations and never buys an annuity. The PFRDA (Operationalisation of Unified Pension Scheme under National Pension System) Regulations, 2025, notified on 19 March 2025, govern the exit, and regulation 19(3) requires the subscriber at superannuation, voluntary retirement or retirement under Fundamental Rule 56(j) to authorise the transfer of the individual corpus to the pool corpus, capped at the value of the benchmark corpus. The monthly payout is then met from the pool corpus by the NPS Trust rather than by an insurer.

Regulation 15(2) allows a final withdrawal of up to 60% of the individual corpus or the benchmark corpus, whichever is lower, and regulation 15(1)(iv) reduces the monthly payout by exactly that proportion. A subscriber who takes the full 60% keeps 40% of the assured payout for life, and unlike commutation of pension under the Old Pension Scheme, the reduction is permanent and is never restored after 15 years.

Partial withdrawal during service is tighter than under NPS. Regulation 18(1) allows up to three partial withdrawals in the whole tenure of the account, of not more than 25% of the subscriber’s own contributions excluding accretion, after a 3-year lock-in, and it counts any withdrawal already made under the 2015 exit regulations towards that limit of three. Death, invalidation and disablement run through Rule 10 of the Central Civil Services (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, notified as G.S.R. 599(E) dated 2 September 2025, on the same Form 1 pattern as the 2021 NPS Rules. The Unified Pension Scheme article works through the benchmark corpus, the service-linked lump sum under regulation 14, and the family payout.

Tier-II withdrawals

No exit rules apply to a Tier-II account. There is no lock-in, no annuity requirement, no permitted-purpose list and no exit form: the subscriber redeems units at will and the proceeds are credited to the registered bank account, usually within a few working days. A Tier-II balance is not part of the corpus that must be annuitised at exit, and the small-corpus thresholds of Rs. 8 lakh and Rs. 5 lakh are computed on Tier-I alone.

The one restriction belongs to central government employees. The NPS Tier-II Tax Saver Scheme, opened to central government employees in 2020, locks each contribution in for 3 years from the date it is made, in exchange for the deduction the scheme carries in the old tax regime. Contributions to an ordinary Tier-II account carry no deduction and no lock-in.

Tier-II also carries none of the exclusions above. Serial 6 of the Table in Schedule II and serial 4 of the Table in Schedule III to the Income-tax Act, 2025 both attach to payments from the National Pension System Trust under the pension scheme referred to in Section 124, which is Tier-I. A Tier-II redemption is taxed on ordinary principles.

Exit processing and timelines

An exit is processed through the Central Recordkeeping Agency, which for the NPS is Protean, KFintech or CAMS, in the online withdrawal system. For a central government employee the request is routed through the nodal-office hierarchy, from the Drawing and Disbursing Officer to the Pay and Accounts Office, which verifies and authorises it, and a retirement case is handled alongside the pension paperwork on the Bhavishya portal.

The subscriber submits the withdrawal form, the KYC documents, a bank proof for crediting the lump sum, and the PRAN card, and selects the annuity service provider and the annuity variant in the same request. Where the exit is on death or invalidation, the Head of Office also certifies the Form 1 option on record under the CCS (Implementation of National Pension System) Rules, 2021, because that option decides whether the case is processed as an NPS corpus exit at all.

A superannuation exit can be initiated up to 6 months before the date of retirement. Starting at that point is the difference between the lump sum and the first annuity instalment falling due around the retirement date and falling due months after it, during which the retiree draws neither salary nor pension. The PPO and life certificate article covers the disbursement side and the annual life certificate that follows, and the superannuation article the retirement itself.

Frequently Asked Questions (FAQs)

How much of my NPS corpus can I take as a lump sum when I retire?

A central government employee can take up to 60% of the Tier-I corpus as a tax-free lump sum at superannuation, and at least 40% must buy an annuity. If the total corpus is up to Rs. 8 lakh, the whole amount can be taken as a lump sum with no annuity.

Does the new 80% lump-sum rule apply to central government employees?

No. The December 2025 move to allow up to 80% as a lump sum applies to private and corporate NPS subscribers, not to government employees, who remain on the 60:40 structure at superannuation and 20:80 at premature exit.

What happens to my NPS corpus if I die in service?

The family chooses between benefits under the CCS pension rules, that is a family pension, and the NPS accumulated corpus, based on the option in Form 1 under the CCS (Implementation of NPS) Rules 2021. If no option was filed, the default is the family pension for the first 15 years of service and NPS benefits thereafter.

Can I withdraw from NPS while still in service?

Yes, a partial withdrawal of up to 25% of your own contributions, not the whole corpus, after 3 years of membership, up to 4 times before retirement, for specified purposes such as a child’s higher education or marriage, a first house, or medical treatment.

Is buying an annuity compulsory?

Yes, above the small-corpus threshold. At superannuation at least 40% of the corpus buys an annuity, and at premature exit at least 80%, from a PFRDA-empanelled annuity service provider. The government default is a life annuity that continues to the spouse and returns the purchase price.

What is Systematic Lump Sum Withdrawal?

It is a facility, introduced by PFRDA Circular No. PFRDA/2023/30/SUP-CRA/10 dated 27 October 2023, to draw the lump-sum portion of the corpus in automated periodic instalments, monthly, quarterly, half-yearly or yearly, instead of one payment, up to the maximum age. It is available at superannuation and premature exit, but not on exit due to death.

Is the NPS lump sum taxable under the Income-tax Act 2025?

No, up to 60% of the corpus. Serial 6 of the Table in Schedule II to the Income-tax Act, 2025, read with Section 11, excludes a payment from the National Pension System Trust on closure of the account or on opting out of the pension scheme referred to in Section 124, provided the payment does not exceed 60% of the total amount payable at that time. The 2025 Act replaced Section 10(12A) of the repealed Income-tax Act, 1961 from 1 April 2026.

Is the annuity income taxable?

Yes, at slab rates in the year of receipt. Section 124(6)(b) of the Income-tax Act, 2025 deems the pension received from an annuity plan purchased on closure or opting out to be the income of the individual. The purchase of the annuity itself is not a taxable event, because Section 124(9) provides that an amount used to buy an annuity plan in the same tax year is not treated as received.

Can I keep contributing to NPS after age 60?

Yes, up to age 85. The amendment of 12 December 2025 raised the maximum age for deferring the lump sum or the annuity purchase and for continuing contributions from 75 to 85, and made the continuation automatic, removing the earlier requirement to give 15 days’ notice before superannuation.

Do the exit rules apply to a Tier-II account?

No. A Tier-II account has no lock-in, no annuity requirement and no exit form. The subscriber redeems units at will and the balance is credited to the registered bank account, and a Tier-II balance is not part of the corpus that must be annuitised at exit. The one restriction is the Tier-II Tax Saver Scheme, open to central government employees since 2020, which locks each contribution in for 3 years.

How does a Unified Pension Scheme exit differ from an NPS exit?

A Unified Pension Scheme subscriber exits under the PFRDA (Operationalisation of Unified Pension Scheme under NPS) Regulations, 2025 of 19 March 2025, not the 2015 exit regulations. Regulation 15(2) allows a final withdrawal of up to 60% of the individual corpus or the benchmark corpus, whichever is lower, and regulation 15(1)(iv) cuts the monthly payout by the same proportion. There is no annuity purchase: regulation 19(3) transfers the individual corpus to the pool corpus and the payout is met from it.

How early can a retiring employee start the exit paperwork?

Six months before the date of superannuation. Initiating the withdrawal request in the Central Recordkeeping Agency system at that point lets the lump sum and the first annuity instalment fall due around the date of retirement rather than months after it, and it runs alongside the pension paperwork on the Bhavishya portal.

External references

References

PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015 (notified 11 May 2015 vide No. PFRDA/12/RGL/139/8), as amended, most recently by the Amendment Regulations, 2026, notified 13 July 2026, which inserted Regulation 4A on specific-purpose schemes and left the exit proportions and thresholds untouched.
PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, dated 12 December 2025 (F. No. PFRDA/16/14/06/0009/2018-REG-EXIT), published in the Gazette on 16 December 2025, and the PFRDA press release of 19 December 2025 on the key amendments (corpus slabs, exit age raised to 85, partial-withdrawal changes, and the 80:20 option for the non-government sector).
Regulation 22, PFRDA (Exits and Withdrawals under the NPS) Regulations, 2015 (annuity service providers and annuity variants).
PFRDA Circular No. PFRDA/2023/30/SUP-CRA/10 dated 27 October 2023 (Systematic Lump Sum Withdrawal facility).
Central Civil Services (Implementation of National Pension System) Rules, 2021 (notified 31 March 2021), Rule 10 (option in Form 1 for benefits on death, boarding out on disablement or retirement on invalidation) and Rule 20 (entitlement on death in service).
Department of Pension and Pensioners’ Welfare Office Memorandum dated 26 October 2022 (options and Form 1 under the CCS (Implementation of NPS) Rules, 2021).
Income-tax Act, 2025 (Act No. 30 of 2025), in force from 1 April 2026 under Section 1(3), Section 536(1) repealing the Income-tax Act, 1961: Schedule II Table serial 6 (payment from the National Pension System Trust on closure or opting out, excluded up to 60% of the total amount payable), Schedule III Table serial 4 (partial withdrawal, excluded up to 25% of the subscriber’s own contributions), Schedule II Table serials 15 and 16 (Unified Pension Scheme), and Section 124(6), (7) and (9).
PFRDA (Operationalisation of Unified Pension Scheme under the National Pension System) Regulations, 2025 (notified 19 March 2025), regulations 14, 15, 18 and 19.
Central Civil Services (Implementation of the Unified Pension Scheme under the National Pension System) Rules, 2025, G.S.R. 599(E) dated 2 September 2025, Rule 10.