NPS partial withdrawal

NPS is meant to be locked away for retirement, but the workbook allows one controlled exception: a subscriber who has been investing for at least three years may take out part of their own money early, for a defined list of needs.

Only the subscriber's own contributions count, not the employer's share and not investment growth on top. And only an employee, not a self-employed subscriber, gets the matching tax exemption on it.

The withdrawal rule (Chapter 5). After 3 years of investing, a subscriber may withdraw up to 25% of their own contributions, for specified purposes: a child's wedding or higher studies, buying or building a house, one-time only, medical treatment of self or family, or settling financial obligations.

The tax rule (Chapter 12, section 12.3.2, section 10(12B)). The withdrawal is exempt from tax only for an employee, and only to the extent of 25% of the employee's own contribution, following the PFRDA Exits and Withdrawals Regulations.

The workbook's own contradiction on how many times. Chapter 5, citing the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, allows partial withdrawal up to a maximum of 4 times before age 60, with a minimum 4-year gap between withdrawals. Chapter 12, citing the older PFRDA (Exits and Withdrawals) (First Amendment) Regulations, 2017, states a maximum of 3 times during the entire subscription. Both figures appear in the same workbook. The more recently dated regulation cited is Chapter 5's, but an exam question could be set from either chapter, so both numbers are worth knowing.

Mr Anand has contributed Rs 8,00,000 of his own money to NPS Tier I over 6 years, alongside separate employer contributions. He needs Rs 1,50,000 for his daughter's wedding.

25% of own contributions        = 25% x 8,00,000 = Rs 2,00,000  (the ceiling)
Withdrawal requested            = Rs 1,50,000              (within the ceiling)
Tax treatment (employee, section 10(12B)) = Fully exempt

Because Mr Anand is a salaried employee, the Rs 1,50,000 is fully exempt under section 10(12B). Had he been self-employed, the workbook's tax provision, worded specifically for employees, does not state the same exemption, so a self-employed subscriber's partial withdrawal needs closer reading of the applicable rule before assuming it is tax-free.

If Mr Anand later wants a second withdrawal, Chapter 5's 2025 regulation would allow it after a 4-year gap, up to 4 times in total before 60; Chapter 12's older citation would cap him at 3 withdrawals in total. Which figure an exam expects depends on which chapter the question is set from.

Chapter 5 (Retirement Products), 'Withdrawal and Exit Rules, Partial withdrawals', gives the 25%, 3-year, 4-times, 4-year-gap rule under the 2025 amendment. Chapter 12, section 12.3.2, gives the tax exemption under section 10(12B), citing the 2017 regulation's 3-times limit. Expect a straightforward computation of the 25% ceiling, and be alert to which chapter's number-of-times figure a question is testing.

• Only the employee's own contribution counts toward the 25%. Never the employer's share, and never investment gains.
• The tax exemption, section 10(12B), is stated for employees only. A self-employed subscriber's position is not spelt out the same way in this chapter.
• The workbook gives two different limits on the number of withdrawals: 4 times, Chapter 5, citing the 2025 amendment, versus 3 times, Chapter 12, citing the 2017 regulation. State both and cite the chapter rather than picking one.
• The minimum gap between withdrawals is 4 years under the cited 2025 rule for pre-retirement partial withdrawals. Do not confuse this with the 3-year gap that applies to subscribers who continue in NPS past 60.