NPS withdrawal rules 2026: how much you can take, what is taxed and what pension to expect

What changed

Under the amended PFRDA exit and withdrawal regulations, a non-government NPS subscriber exiting at 60 or later must use at least 20% of the corpus to buy an annuity, the plan that pays a monthly pension. Up to 80% can be withdrawn as a lump sum. Before the change, at least 40% had to go into an annuity, so the lump sum was capped at 60%.

Other changes in the same package:

• If the total corpus is ₹8 lakh or less, the whole amount can be withdrawn.
• You can stay invested in NPS up to age 85 instead of 75.
• The lump sum can be taken in instalments instead of all at once.
• Before 60, up to four partial withdrawals are allowed, with at least four years between them.

Tax did not change in step

At exit, 60% of the corpus is tax-free. The rules now allow you to take 80%, but no tax exemption has been announced for the extra 20%, so that part is added to your income and taxed at your slab rate in the year you take it. The annuity purchase itself is not taxed, but the monthly pension it pays is taxable income every year.

So taking the full 80% at once can push you into a higher slab that year. Spreading withdrawals over a few years, or leaving the extra 20% in the annuity, may leave you with more after tax. Run both options through the income tax calculator before deciding.

A worked example

Suppose your corpus at 60 is ₹1 crore and annuities pay about 6% a year. Under the old minimum, ₹40 lakh would buy an annuity paying about ₹20,000 a month, and ₹60 lakh would be a tax-free lump sum.

Under the new rules you could take ₹80 lakh as a lump sum: ₹60 lakh tax-free and ₹20 lakh taxable. The remaining ₹20 lakh would buy an annuity paying about ₹10,000 a month. You get more cash and flexibility, but half the guaranteed lifetime pension.

The NPS calculator shows this split for your own contribution, age and expected return, including the tax-free and taxable parts of the lump sum.

Annuity or lump sum: how to think about it

An annuity pays for life, however long you live, but most plans pay a fixed amount that loses value to inflation, and the rate is locked in when you buy. A lump sum gives you control: you can keep some in safe deposits and draw a monthly income from the rest with a systematic withdrawal plan, but the money can run out if you withdraw too much or returns disappoint.

Many retirees combine both: an annuity large enough to cover essential bills, and the rest invested for flexibility. The SWP calculator shows how long a lump sum lasts at a given monthly withdrawal.

Points to check before you exit

Rules and tax treatment can change, so confirm the current position with your NPS provider or a tax adviser before you exit.

• Government employees follow different rules; at least 40% of their corpus must still buy an annuity.
• Leaving NPS before 60 normally requires 80% of the corpus to go into an annuity.
• Annuity rates differ between insurers and plans. Compare quotes, including joint-life plans that continue paying your spouse.
• Contributions still save tax while you work: your own contribution in the old regime, and your employer's contribution in both regimes.