User Intent
Users searching for this topic want to know whether they can pre-close their National Pension System (NPS) account before maturity. They seek clarity on the process, eligibility, benefits, and limitations of pre-closing an NPS account.
Introduction
The National Pension System (NPS) is a government-backed retirement savings scheme designed to provide financial security during old age. However, life is unpredictable, and there may be situations where an NPS subscriber needs to exit the scheme before the maturity period. In this article, we will explore whether pre-closure of an NPS account is possible, the steps involved, its benefits, and its limitations.
Definition of Pre-Closing an NPS Account
Pre-closing an NPS account refers to the process of withdrawing funds and closing the pension account before the stipulated maturity age of 60 years. While the NPS is a long-term savings instrument, the Pension Fund Regulatory and Development Authority (PFRDA) has set guidelines for premature exit under specific conditions.
Application: How to Pre-Close an NPS Account?
If you wish to exit the NPS before maturity, follow these steps:
Step 1: Check Eligibility for Pre-Closure
A subscriber can pre-close an NPS account under the following conditions:
- After 5 years of account opening (for Tier-I accounts)
- If facing critical illness (as per PFRDA guidelines)
- If permanently leaving India
- In case of death of the subscriber (nominee can claim)
- If subscriber’s total corpus is below ₹2.5 lakh
Step 2: Prepare Required Documents
To initiate the exit process, you need:
- Withdrawal Form (Available on the NPS website)
- KYC Documents (Aadhaar, PAN, Address Proof)
- Bank Account Details (Cancelled cheque or passbook copy)
- Medical Certificate (In case of critical illness)
- Proof of Migration (For permanent relocation abroad)
Step 3: Submit the Application
- Log in to the NSDL CRA or KFintech CRA portal.
- Navigate to the Withdrawal Section.
- Upload the necessary documents.
- Submit the request for processing.
- Alternatively, visit the nearest NPS Point of Presence (PoP) for offline submission.
Step 4: Fund Disbursement
- 60% of the corpus is given as a lump sum payout.
- 40% of the corpus must be used to buy an annuity plan from an authorized provider.
- If the total corpus is below ₹2.5 lakh, the entire amount is paid as a lump sum.
For more information visit this: https://enps.nsdl.com/eNPS/
Benefits of Pre-Closing an NPS Account
Though designed as a long-term investment, pre-closure offers certain advantages:
- Liquidity in Emergencies – Subscribers facing financial difficulties due to medical issues or unexpected events can access their savings.
- Tax Benefits – Lump sum withdrawals continue to enjoy tax exemptions under Section 10(12A) of the Income Tax Act.
- Flexibility for Migrants – Those relocating permanently outside India can exit without hurdles.
- Nominee Access – In case of death, the nominee can claim the entire accumulated amount hassle-free.
- Avoid Market Volatility – If you foresee market instability, early withdrawal can help safeguard savings from potential downturns.
Limitations of Pre-Closing an NPS Account
While pre-closure is an option, it comes with certain drawbacks:
- Loss of Retirement Benefits – The primary goal of NPS is to secure post-retirement income. Exiting early means missing out on long-term compounding benefits.
- Mandatory Annuity Purchase – Even upon pre-closure, 40% of the corpus must be invested in an annuity, restricting full withdrawal.
- Limited Exit Before 5 Years – Tier-I NPS subscribers cannot exit before 5 years, except in cases of death or serious illness.
- Possible Tax Implications – While partial withdrawals are tax-free, the annuity income remains taxable.
- Lower Corpus Accumulation – Premature withdrawal means subscribers might not accumulate a substantial retirement fund.
Comparative Table: Pre-Closure vs Regular Maturity of NPS
| Feature | Pre-Closure | Regular Maturity (at 60 years) |
|---|---|---|
| Eligibility | After 5 years (Tier-I) | Anytime after 60 years |
| Withdrawal Limit | 60% lump sum, 40% annuity | 60% lump sum, 40% annuity |
| Tax Benefit | Partial tax exemptions | Full tax benefits |
| Annuity Requirement | Mandatory 40% annuity purchase | Mandatory 40% annuity purchase |
| Retirement Security | Lower due to early withdrawal | Higher due to long-term accumulation |
| Flexibility | Limited | Maximum flexibility |
Conclusion
Pre-closing an NPS account is possible under specific conditions such as medical emergencies, migration, or financial constraints. However, it is crucial to consider the long-term implications, such as reduced retirement security and annuity restrictions. If you need liquidity, evaluating other investment alternatives before exiting NPS might be a better strategy.
Frequently Asked Questions (FAQs)
1. Can I close my NPS account before 5 years?
No, pre-closure of a Tier-I NPS account is only allowed after 5 years, except in cases of death or critical illness.
2. Will I get my full amount if I pre-close my NPS account?
No, 40% of the corpus must be used to purchase an annuity, and only 60% is available as a lump sum.
3. Is NPS withdrawal taxable on pre-closure?
The lump sum withdrawal is tax-exempt, but annuity payouts are taxable as per the individual’s income slab.
4. What happens if my corpus is below ₹2.5 lakh?
If your NPS corpus is below ₹2.5 lakh at the time of pre-closure, you can withdraw the entire amount without purchasing an annuity.
5. Can I rejoin NPS after pre-closure?
No, once an NPS account is closed, you cannot reopen the same account. However, you can start a new NPS account if eligible.
