NPS exit and withdrawal rules

The NPS exit and withdrawal rules govern how, when, and in what proportion a subscriber can take money out of the National Pension System Tier-I account. They are set by the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, issued by the Pension Fund Regulatory and Development Authority and most recently overhauled by an amendment notified on 19 December 2025. For a central government employee there is a second layer: the Central Civil Services (Implementation of National Pension System) Rules, 2021, which decide what happens to the corpus on death or disablement in service.

This article carries the position as amended on 19 December 2025, and one point runs through it: the widely reported liberalisation that lets a subscriber take up to 80 per cent as a lump sum does not apply to government employees, who remain on the 60:40 structure at superannuation. Getting that wrong is the single commonest error about the new rules.

Four events take money out of Tier-I: normal exit on superannuation, premature exit before superannuation, exit on death, and partial withdrawal during service. This article covers each for a central government subscriber, then the annuity and the exit process. The National Pension System article covers the scheme itself, and the NPS tax benefits article the taxation, so the tax treatment is only pointed to here.

Normal exit on superannuation

At superannuation, a central government employee takes up to 60 per cent of the accumulated pension wealth as a lump sum, and at least 40 per cent must be used to buy an annuity. That 60:40 base split is unchanged by the December 2025 amendment.

What changed is the small-corpus relief and the phasing. The threshold below which the whole corpus can be taken as a lump sum, with no annuity, was raised from Rs. 5 lakh to Rs. 8 lakh for a government subscriber. The revised slabs are:

Two further changes help. A subscriber may defer taking the lump sum or buying the annuity, and may continue contributing, up to a maximum age that the amendment raised from 75 to 85, and continuation is now automatic without the earlier requirement to give 15 days’ notice. And the lump-sum portion need not be taken in one payment: the Systematic Lump Sum Withdrawal facility, introduced by a PFRDA circular of 27 October 2023, lets a subscriber draw it in automated instalments, monthly, quarterly, half-yearly or yearly, up to the maximum age. That facility is available at superannuation and at premature exit, but not on exit due to death.

Premature exit before superannuation

Premature exit is triggered when a government employee leaves service before superannuation, by resignation, voluntary retirement , or removal. Here the split is reversed: up to 20 per cent as a lump sum, and at least 80 per cent to buy an annuity, so that most of the corpus is turned into a pension rather than paid out. This too is unchanged in the base split.

The small-corpus threshold rose. A government subscriber whose corpus is up to Rs. 5 lakh, raised from Rs. 2.5 lakh, can take the whole amount as a lump sum; above Rs. 5 lakh the 20:80 rule applies. There is no separate years-of-service gate on premature exit under the exit regulations for a government employee, because leaving service before superannuation is itself the trigger; the 15-year vesting period and the old 5-year lock-in that are sometimes quoted are features of the non-government All Citizen model, not of the government exit.

Death in service: the choice that matters

The most important rule for a government subscriber is what happens to the corpus on death in service, because it is where the government NPS differs most from a generic account. Two layers apply.

The exit-regulation mechanics set the default proportions: if the benefit flows through the NPS corpus, the family gets up to 20 per cent as a lump sum and at least 80 per cent as an annuity, with the same small-corpus relief (the whole corpus if it is up to Rs. 8 lakh).

But the decisive layer is the CCS (Implementation of NPS) Rules, 2021. Under Rule 10, every NPS-covered central government servant exercises an option, in Form 1 at the time of joining, over what the family receives on death in service (or on the employee’s boarding-out on disablement or retirement on invalidation): either benefits under the CCS pension rules, that is a family pension or extraordinary pension , an assured old-pension-style benefit, or benefits from the accumulated NPS corpus. The option is the employee’s to make; the family cannot make it after the death. If no option was filed, the default is the family pension for the first 15 years of service and the NPS benefit thereafter.

Under Rule 20, where the CCS pension route applies, 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 the legal heir if there is no valid nomination. There is a safeguard: if the CCS pension option cannot take effect because there is no eligible family member for a family pension, it is treated as invalid and the NPS benefits pass to the legal heirs. For most families the assured family pension is the more valuable choice, which is why the option in Form 1 is worth taking seriously at the start of service, not left to default.

Partial withdrawal during service

A subscriber can take money out during service without exiting, within tight limits. The amount is up to 25 per cent of the subscriber’s own contributions only, not the employer’s contribution and not the investment returns, and for a second or later withdrawal only the additional own contributions since the last withdrawal count. It is available after 3 years of membership, and the December 2025 amendment raised the number of times allowed from three to four before retirement, with a minimum gap of 4 years between withdrawals.

The permitted purposes were revised in December 2025. They 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 someone who already owns a house other than ancestral property; medical treatment or hospitalisation, which was 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, so a current partial withdrawal cannot be taken for those. The partial withdrawal is exempt from income tax under Section 10(12B), as the NPS tax benefits article sets out.

The December 2025 liberalisation, and who it is for

The December 2025 amendment was widely reported for allowing up to 80 per cent of the corpus as a lump sum at normal exit, with only 20 per cent annuitised. The scope is the point to be clear about. That 80:20 option applies to the All Citizen model and the corporate sector, and to individuals who join the NPS after age 60. It does not apply to the government sector, which stays on 60:40 at superannuation and 20:80 at premature exit. So a central government employee should not plan on taking 80 per cent as a lump sum; the figure for them is 60 per cent.

There is also a tax lag worth noting for anyone to whom the 80 per cent does apply: the income-tax law still exempts only 60 per cent of the corpus under Section 10(12A), so the extra 20 per cent taken as a lump sum is taxable at the slab rate until the tax law is amended. For a government employee this does not arise, because they remain at 60 per cent.

The annuity

The part of the corpus that is not taken as a lump sum, 40 per cent at superannuation or 80 per cent 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. The subscriber chooses the provider and the annuity variant on the withdrawal request. The common variants are a life annuity, a joint-life annuity that continues to the spouse, and a variant that returns the purchase price to the nominee at the end, with or without which the monthly amount differs.

The government sector has a default annuity: a life annuity with the provision that 100 per cent of the annuity continues to the spouse on the death of the subscriber, and the purchase price is returned to the nominee after both, which is the variant that best protects the family. For a government subscriber the annuity is paid monthly. The annuity pension, once it starts, is taxable as income, unlike the lump sum.

The exit process

An exit is processed through the Central Recordkeeping Agency, which for the NPS is Protean, KFintech or CAMS, in the online system. For a government employee the request is routed through the nodal-office hierarchy, from the Drawing and Disbursing Officer to the Pay and Accounts Office, which authorises and forwards 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 the lump-sum credit and the PRAN card, and selects the annuity provider and scheme.

A superannuation exit can be initiated up to 6 months before the date of retirement, so that the lump sum and the annuity are ready around the retirement date rather than after it. The PPO and life certificate article covers the disbursement side and the annual life certificate that follows, and the superannuation article the retirement itself.

See also

• National Pension System
• NPS tax benefits
• Unified Pension Scheme
• Old Pension Scheme
• NPS vs OPS vs UPS
• Central government pension
• Family pension
• Disability and invalid pension
• Annuity
• Pension Fund Regulatory and Development Authority
• Systematic Lump Sum Withdrawal
• Annuity service provider
• Central Recordkeeping Agency
• CCS (Pension) Rules, 2021
• Commutation of pension
• Gratuity for central government employees
• Superannuation
• Voluntary retirement
• PPO and the annual life certificate
• Department of Pension and Pensioners’ Welfare
• Income tax for pensioners
• Income tax for government employees
• Dearness relief
• Basic pay
• 7th Central Pay Commission
• Central government pension calculation
• Central government employees in India
• Commutation of pension calculator
• Family pension calculator

External references

• Pension Fund Regulatory and Development Authority
• NPS Trust
• Department of Pension and Pensioners’ Welfare

References

1. PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015 (notified 11 May 2015), as amended.
2. PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, notified 19 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).
3. PFRDA Circular No. PFRDA/2023/30/SUP-CRA/10 dated 27 October 2023 (Systematic Lump Sum Withdrawal facility).
4. Central Civil Services (Implementation of National Pension System) Rules, 2021 (notified 31 March 2021), Rule 10 (option in Form 1 for benefits on death or disablement) and Rule 20 (entitlement on death in service).
5. Department of Pension and Pensioners’ Welfare Office Memorandum dated 26 October 2022 (options and Form 1 under the CCS (Implementation of NPS) Rules, 2021).
6. Regulation 22, PFRDA (Exits and Withdrawals under the NPS) Regulations, 2015 (annuity service providers and annuity variants).