NPS Withdrawal: Can the entire NPS fund be withdrawn after the age of 60? Find out from a CA..

NPS Tax Rules: The new exit rules issued by the pension regulator, PFRDA, for National Pension System (NPS) subscribers offer relief but create a significant technical complication regarding taxation. If your total NPS corpus is ₹8 lakh or less upon attaining the age of 60, the PFRDA allows you to withdraw 100% of the fund as a lump sum.

The question arises: will this entire 100% amount be tax-free? According to tax and personal finance expert CA Balwant Jain, due to discrepancies between PFRDA regulations and the Income Tax Act, subscribers opting for a 100% withdrawal might still have to pay tax on 40% of the amount.

Let us understand what the PFRDA rules and income tax laws state, and what advice CA Balwant Jain offers on this matter.

PFRDA's New Exit Rules: Withdrawal Limits Based on Corpus Size

In June 2025, the PFRDA revised the exit and lump-sum withdrawal limits for NPS Tier-1 accounts:

Corpus of ₹8 lakh or less: Subscribers can withdraw 100% of their entire corpus as a lump sum. There is no mandatory requirement to purchase an annuity or pension plan. Previously, this limit was ₹5 lakh.

Corpus between ₹8 lakh and ₹12 lakh: Subscribers are mandatorily required to purchase an annuity worth at least ₹6 lakh, while the remaining amount can be withdrawn as a lump sum.

Corpus exceeding ₹12 lakh: Subscribers must invest at least 20% of their corpus in an annuity, while a maximum of 80% can be withdrawn as a lump sum. Under the old rules, purchasing an annuity worth 40% of the corpus was mandatory if the corpus exceeded ₹5 lakh. The Income Tax Act Conundrum: CA Balwant Jain's View

According to CA Balwant Jain, although the PFRDA has permitted 100% withdrawal for a corpus of up to ₹8 lakh and an 80% lump-sum withdrawal for amounts exceeding ₹12 lakh, the income tax rules have not yet been updated to reflect this:

Rule under Section 10(12A): Under Section 10(12A) of the Income Tax Act, 1961, only up to 60% of the NPS corpus is tax-free.

Awaiting Amendment to Income Tax Laws: While the PFRDA has raised the percentage limits for withdrawal, corresponding changes to the Income Tax Act are still pending. Until the tax law is amended, the tax exemption limit will remain at 60%.

As CA Balwant Jain notes, "Even though you may be permitted to withdraw 100% of the amount from your Tier-1 account, the tax exemption applies only to 60% of the corpus. Consequently, subscribers with a corpus of less than ₹8 lakh who withdraw the entire amount will have to pay income tax on the remaining 40% portion according to their applicable tax slab."

Smart Financial Tip for Tax Saving

If you wish to avoid paying tax on 40% of your NPS corpus, instead of withdrawing the entire 100% as a lump sum, withdraw only 60% and use the remaining 40% to purchase an annuity or defer the withdrawal as per the rules. No tax is levied at the time of purchasing the annuity; however, the monthly pension received subsequently is taxable according to your tax slab.

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