The biggest complaint about the National Pension System (NPS) was always the exit: at 60 you could take only 60% of your money and had to lock the rest into an annuity. In December 2025, the Pension Fund Regulatory and Development Authority (PFRDA) changed that. Private-sector and self-employed subscribers can now take up to 80% as a lump sum. Here is what the new NPS withdrawal rules mean, how much tax you might pay, and how to decide how much cash to take.
What Changed in December 2025
The PFRDA (Exits and Withdrawals under NPS) (Amendment) Regulations, 2025 made several changes for non-government subscribers – that is, corporate employees and individuals who joined under the "All Citizen" model:
- The maximum lump sum at normal exit rose from 60% to 80% of the corpus.
- The minimum amount that must buy an annuity fell from 40% to 20%.
- The limit for taking the entire corpus in cash was raised, so small accounts can exit without buying an annuity.
- You can now stay invested in NPS up to age 85 (earlier 70).
- NPS balances can be pledged to take loans from regulated lenders.
Government employees covered by NPS still follow the older 60:40 split at retirement.
NPS Exit Rules at a Glance
| Corpus at exit (non-govt, age 60) | Lump sum | Annuity |
|---|---|---|
| ₹8 lakh or less | Up to 100% | Optional |
| Above ₹8 lakh up to ₹12 lakh | Fixed lump sum (about ₹6 lakh) | Rest via annuity or systematic withdrawal |
| Above ₹12 lakh | Up to 80% | At least 20% |
The middle band is the most technical, and summaries differ on the exact wording, so check the latest PFRDA circular or the CRA website before you file your exit request if your corpus falls in it.
Example: A ₹1.14 Crore Corpus
Say you put ₹5,000 a month into NPS from age 30 to 60 and earn an average 10% a year. Your corpus would be about ₹1.14 Cr (₹1,13,96,627). Under the new rules you could split it like this:
The 80% lump sum is ₹91,17,301. The remaining ₹22,79,325 buys an annuity, which at a 6% annuity rate pays about ₹11,397 a month for life.
How Is the NPS Lump Sum Taxed?
This is the catch. The income tax exemption for the NPS lump sum is written as 60% of the corpus. The PFRDA change lets you withdraw 80%, but unless the tax law is amended, the extra 20% may be added to your income and taxed at your slab rate in the year you withdraw it. In the example above, that is ₹22,79,325 of potentially taxable income – for someone in the 30% slab, the tax could exceed ₹7 lakh.
- Up to 60% of the corpus: tax-free.
- From 60% to 80%: may be taxable at your slab rate.
- Annuity pension: taxable as income each year, but spread over many years, often at a low slab after retirement.
- Partial withdrawals (up to 25% of your own contributions): tax-free.
More Cash or More Pension?
Every extra 10% you take as cash reduces your pension by about ₹5,698 a month in this example. Annuities give a guaranteed income for life but their rates (around 6%–7%) are fixed and taxable. A lump sum gives you flexibility – to clear a home loan, help your children or invest in a mix of FDs, debt funds and senior citizen schemes – but you have to manage it yourself and make it last.
A simple approach: work out your essential monthly expenses, buy enough annuity (plus EPF, rent or other pensions) to cover them, and take the rest as cash.
Partial Withdrawals Before 60
You can withdraw up to 25% of your own contributions (not employer contributions or returns) before retirement for specific needs: children's higher education or wedding, buying or building your first house, treatment of serious illnesses, disability, or starting a business. There is a minimum holding period and a limit on how many times you can do it, so check the current conditions on the CRA portal. These withdrawals are tax-free.
Exiting NPS Early
If you leave NPS before 60, the rules are stricter: generally only 20% can be taken as a lump sum and at least 80% must buy an annuity, unless your corpus is small enough for a full withdrawal. If a subscriber dies, the nominee can take the entire corpus.
Why Your Return Matters as Much as the Rules
The withdrawal rules decide how you take your money out, but your asset mix decides how much there is. The same ₹5,000 a month can become anything from ₹75.0 L to ₹1.76 Cr depending on whether you earn 8% or 12%. Younger subscribers who choose a higher equity share (up to 75% under Active Choice) have historically ended up with much larger corpora. As you approach 60, Auto Choice gradually moves money to bonds to protect what you have built.
Checklist Before You Exit NPS
- Log in to your CRA account (Protean, KFintech or CAMS) and check your corpus and nominee details.
- Decide your lump sum percentage – 60% if you want it all tax-free, up to 80% if you need the cash.
- Compare annuity quotes from the empanelled insurers; pick between options such as life annuity, joint life, and return of purchase price.
- Consider deferring the lump sum or annuity if you do not need income yet – you can stay invested until 85.
- Plan for the tax on any withdrawal above 60% and on your pension.
Combine NPS with your EPF, PPF and gratuity to see your complete retirement income.
Frequently Asked Questions
Can I withdraw 80% of my NPS corpus?
Yes, if you are a non-government subscriber exiting at 60 or later with a corpus above ₹12 lakh. At least 20% must be used to buy an annuity. Government employees can withdraw up to 60%.
Is the 80% NPS withdrawal tax-free?
Not entirely. The income tax exemption covers 60% of the corpus. The additional 20% may be taxed at your slab rate unless the law is changed.
When can I withdraw my full NPS amount?
Non-government subscribers can withdraw the entire corpus if it is ₹8 lakh or less at normal exit. On the death of the subscriber, the nominee gets the full amount.
Can I withdraw from NPS before 60?
You can make partial withdrawals of up to 25% of your own contributions for specific needs such as education, marriage, a house or illness. On a full early exit, usually only 20% can be taken as cash.
How is NPS pension calculated?
Pension = amount used to buy the annuity × annuity rate ÷ 12. ₹22.8 lakh at 6% gives about ₹11,400 a month.
Do the new NPS rules apply to government employees?
The 80% lump sum rule is for non-government subscribers. Central and state government employees under NPS continue with the 60% lump sum and 40% annuity rule at retirement.
Disclaimer: NPS rules are set by PFRDA and were last amended in December 2025. Thresholds, annuity rates and tax treatment can change; returns shown are assumptions, not guarantees. This is general information, not financial advice – read the latest PFRDA circulars or ask an adviser before you exit.