You have been putting money into the National Pension System (NPS) for years. Now you want some of it back. When can you leave? How much must go into a pension? How much can you take as cash? And will the tax office treat that cash as income?

This article is for a subscriber who is not a government employee. It follows the exit regulations as substituted with effect from 16 December 2025 and last amended on 20 July 2026, and the tax provisions that sit on top of them.

## Which rule book applies to you

Exit is governed by the PFRDA (Exits and Withdrawals under the NPS) Regulations, 2015. They sort subscribers into three groups: government sector, non-government sector, and NPS-Lite and Swavalamban (Chapter II, as substituted w.e.f. 16.12.2025). Regulation 3 covers government sector subscribers. Regulation 4 covers non-government sector subscribers, defined as any subscriber other than a government sector subscriber (Regulation 2(m)). Corporate sector subscribers fall here too.

Two carve-outs matter. A person who retired from government service and continues in NPS in any manner, including the All Citizen model or the corporate route, exits under Regulation 3 (Explanation (ii) to Regulation 3). A corporate sector subscriber of a statutory body, or of a body corporate or entity owned and controlled by the Central or a State Government or a Government Company, exits under Regulation 3(1)(a) on superannuation or retirement (third proviso to Regulation 4(1)(a)). Specific purpose schemes follow guidelines issued by PFRDA for that scheme (Regulation 4A(1)).

In plain words: "accumulated pension wealth" is the money in your account; an "annuity" is a pension bought from an insurer that pays you regularly.

## The default: you may stay in until 85

A non-government sector subscriber remains in the system until age 85 unless the subscriber chooses to exit (Regulation 4(1)). Nothing forces you out at 60.

## Normal exit: 15 years, age 60, or retirement

You may exit if you have subscribed for at least fifteen years (or a longer period if your scheme says so), or have reached sixty, or have superannuated or retired under the terms of your employment (Regulation 4(1)(a)).

On such an exit, at least 20% of the accumulated pension wealth must be used to buy an annuity paying a monthly or other periodic pension. The balance may be paid as a lump sum, or as periodic payouts through systematic lump sum withdrawal or systematic unit redemption, or in line with other options PFRDA approves (Regulation 4(1)(a)).

The compulsory annuity share is therefore 20%, so up to 80% can come out as cash or staged payouts. The earlier Regulation 4 required 40%; it was substituted w.e.f. 16.12.2025, so do not use the old figure.

## Small balances

These limits apply to a normal exit under Regulation 4(1)(a):

- Corpus not above ₹8 lakh: you may withdraw all of it as a lump sum, or take periodic payouts, or follow other options PFRDA approves (Regulation 4(1)(a)(i)).
- Corpus above ₹8 lakh and up to ₹12 lakh: you may withdraw up to ₹6 lakh as a lump sum (or take periodic payouts). The balance must go into systematic unit redemption payouts for at least six years, or into an annuity, or into other options PFRDA approves (Regulation 4(1)(a)(ii)).
- Corpus above ₹12 lakh: the 20% annuity rule applies in full.

## Joining NPS at or after sixty

An individual who subscribes to NPS on or after attaining sixty, and exits before eighty-five, must also put at least 20% into an annuity. If the corpus is ₹12 lakh or less (or any other limit PFRDA approves), the whole amount can be withdrawn as a lump sum or periodic payouts (Regulation 4(1)(e)).

## Putting off the decision

A subscriber may defer buying the annuity, or withdrawing the lump sum, until age 85 by sending a request to the NPS Trust or an authorised intermediary, and may exit at any time during that period (first proviso to Regulation 4(1)(a)). If you die after deferring and before the annuity purchase or lump sum withdrawal, the amount meant for it is paid to your nominee or legal heir (second proviso to Regulation 4(1)(a)).

Staying in has a cost. Where a subscriber, after becoming eligible to exit, continues or defers withdrawal, the expenses, maintenance charges and fee on the account are borne by the subscriber (Explanation (ii) to Regulation 4). Check the current charges with your pension fund or the central recordkeeping agency.

## Leaving early

If you exit voluntarily before becoming eligible under the normal rule, at least 80% of the accumulated pension wealth must buy an annuity. Only the balance can be paid as a lump sum or periodic payouts (Regulation 4(1)(b)).

Small accounts get relief. If the corpus is ₹5 lakh or less, or any other limit PFRDA approves, you may withdraw all of it as a lump sum or take periodic payouts (proviso to Regulation 4(1)(b)). Since PFRDA can change the figure, confirm the current limit on the NPS Trust or PFRDA website before you apply.

## If the subscriber dies

If a non-government subscriber dies before exit, the entire accumulated pension wealth is paid as a lump sum to the nominee or legal heir (Regulation 4(1)(c)). The nominee or legal heir may instead choose periodic payouts or an annuity (first proviso to Regulation 4(1)(c)). If no nomination was registered, payment goes to the legal heirs on the strength of a legal heir certificate from the competent authority of the State, or a succession certificate from a court (second proviso to Regulation 4(1)(c)). Keep your nomination current.

## Disability

A subscriber who is physically incapacitated or has a bodily disability that makes continuing impossible exits under the normal rule in Regulation 4(1)(a), subject to a disability certificate from a Government surgeon or treating doctor. The certificate must say that the subscriber cannot perform regular duties and may be unable to work for the rest of his or her life, and that the disability is more than 75% (Regulation 4(1)(d)).

## What is taxed

The regulations decide how much cash you can take. The Income-tax Act decides how much of it is taxed, and which Act applies depends on the year.

- Receipt in financial year 2025-26: the Income-tax Act, 1961 applies. The relevant provisions are section 10(12A) and section 80CCD. I do not restate the operative text of those two sections here; check them, or ask a CA, before relying on any figure for a 2025-26 withdrawal.
- Receipt in tax year 2026-27 or later: the Income-tax Act, 2025 applies (in force from 1 April 2026). The equivalents are item 6 of Schedule II and section 124.

### Lump sum on closure: up to 60% excluded

Under the Income-tax Act, 2025, a payment from the NPS Trust is excluded from total income if it is made on closure of the assessee's account or on opting out of the pension scheme referred to in section 124, and does not exceed 60% of the total amount payable at the time of closure or opting out (item 6, Schedule II, Income-tax Act, 2025).

Do not read this as matching the 20% annuity rule. They are different tests in different laws. If you take the maximum 80% as cash, the 60% exclusion covers three quarters of that cash, and the remaining 20% of the corpus is outside the exclusion. Whether that slice is taxed depends on section 124(6), described below. Whether a smaller cash withdrawal is wholly within the 60% is a computation your CA should check against your own figures.

### Annuity money

Under section 124(6) of the Income-tax Act, 2025, an amount for which a deduction was allowed, together with the accrual on it, that is received by the assessee or nominee on closure or opting out, is deemed to be income of the year of receipt. The same applies to pension received from an annuity plan bought on such closure (section 124(6)(a) and (b)).

Two softenings apply. An amount used to buy an annuity plan in the same tax year is not treated as received (section 124(9)). And an amount received by a nominee on the assessee's death is not deemed to be the nominee's income (section 124(7)). So the money placed in the annuity is not taxed when it is placed there; the pension the annuity pays later is taxed when received. Section 124(6) and item 6 of Schedule II must be read together.

### Partial withdrawals while you stay invested

Item 4 of Schedule III to the Income-tax Act, 2025 excludes a payment from the NPS Trust on partial withdrawal, made as per the PFRDA Act, 2013 and the regulations under it, but the exclusion cannot exceed 25% of the contributions made by the person. It covers an employee, and an assessee who is the guardian or parent of a minor. The conditions of the withdrawal itself come from PFRDA rules not covered in this article.

The 1961 Act has the same 25% idea. Section 10(12B), inserted by the Finance Act, 2017 w.e.f. 1 April 2018, covers a payment to an employee on partial withdrawal, to the extent it does not exceed 25% of his contributions. Section 10(12BA), inserted by the Finance Act, 2025 w.e.f. 1 April 2026, covers a parent or guardian withdrawing from a minor's account on the same terms.

### The deduction on the way in

Section 124(3) of the Income-tax Act, 2025 allows an individual a deduction of up to ₹50,000 for amounts paid into a notified pension scheme account in the tax year. Section 124(5) bars a deduction under section 124(3) and (4) for an amount already deducted under section 123. The 1961 Act counterpart is section 80CCD. The Finance Act, 2026 text on disk contains no change to these NPS provisions.

## Mistakes to avoid

- Do not quote "forty per cent annuity" as the rule for a non-government subscriber. After 16 December 2025 it is 20% on a normal exit (Regulation 4(1)(a)).
- Do not treat ₹8 lakh, ₹12 lakh and ₹5 lakh as permanent. The ₹5 lakh and ₹12 lakh limits carry the words "any other limit approved by the Authority".
- Do not confuse the 60% income-tax exclusion with the 20% minimum annuity.
- Do not close the account early in a hurry. An early exit forces at least 80% into an annuity (Regulation 4(1)(b)).
- Do not forget the nomination. It decides who is paid and how fast.

## What to do now

- Next step: log in to your NPS account, check your years of subscription and your age, and confirm which clause applies (Regulation 4(1)(a), (b) or (e)).
- Deadline: the regulation sets no calendar date for a normal exit. Deferral is by request to the NPS Trust or an authorised intermediary, up to age 85 (first proviso to Regulation 4(1)(a)).
- Consequence of not planning: an early exit puts at least 80% of the corpus into an annuity (Regulation 4(1)(b)), and annuity pension is taxed when received (section 124(6)(b), Income-tax Act, 2025).

Have a CA review your facts before you act or file.

## Frequently asked questions

**Can I take all my NPS money out at 60?**
Not automatically. On a normal exit at least 20% must buy an annuity, unless the corpus is ₹8 lakh or less, when you may take it all (Regulation 4(1)(a) and (a)(i)).

**Is the whole lump sum tax-free?**
No. Under the Income-tax Act, 2025 the exclusion on closure is limited to 60% of the total amount payable (item 6, Schedule II). Annuity pension is taxed when you receive it (section 124(6)(b)).

**Can I withdraw some money and keep the account?**
Yes, partial withdrawals exist. The tax exclusion is capped at 25% of your own contributions (item 4, Schedule III, Income-tax Act, 2025).

**Does my family get the money if I die?**
Yes. Before exit, the whole corpus goes to the nominee or legal heir (Regulation 4(1)(c)). The nominee's receipt on death is not deemed to be the nominee's income (section 124(7), Income-tax Act, 2025).

**Which Act applies to a withdrawal this year?**
A withdrawal in 2025-26 falls under the Income-tax Act, 1961 (sections 10(12A), 80CCD). From 1 April 2026 the Income-tax Act, 2025 applies. The 1961 Act text of section 10(12A) was not available for this article, so check it before filing.

**I am a government employee. Is this the same?**
No. Government sector subscribers fall under Regulation 3, where at least 40% buys an annuity on superannuation (Regulation 3(1)(a)).

Canonical: https://www.harunraaj.com/blog/nps-exit-withdrawal-rules