Investing in NPS Tier-I? No partial withdrawals allowed from employer contributions or returns

The National Pension System (NPS) allows partial withdrawals from the Tier-I account for various reasons before you turn 60 years old.

However, you can't make a partial withdrawal from your employer's contribution or the returns from your investment in the Tier-I account. This rule applies under both old and new tax regimes.

"A subscriber can withdraw an amount not exceeding twenty-five percent (25%) of his/her own contribution made to the NPS account, excluding the employer's contributions as on the date of application of such withdrawal," the NPS Trust says.

Further, the returns generated on your contributions to the Tier-I account are also not eligible for partial withdrawal.

However, a full or partial withdrawal is allowed at any time from the NPS Tier-II account.

The above means three things:

First, under the new tax regime, the employer's contribution up to 14% of the basic salary qualifies for tax deduction. But you can't make a partial withdrawal from the employer's contribution in case you need it in the future.

Second, you should make your own contribution to the NPS Tier-I account if you plan to make any partial withdrawal before retirement or before turning 60.

Third, you can invest in the NPS Tier-II account if you plan to withdraw any amount at any time. The returns from both NPS Tier-I and Tier-II accounts are similar.

For example, suppose your contribution to NPS is ₹15 lakh and your employer's contribution is ₹20 lakh, while the return from both investments is ₹10 lakh. In this case, you can make a partial withdrawal of only ₹3.75 lakh, which is 25% of your own ₹15 lakh contribution.

How much partial withdrawal is allowed and for what purposes?

An NPS subscriber can withdraw up to 25% of their own contribution for various reasons (mentioned later in this article). However, there are a few conditions for such partial withdrawals:

• You can make a partial withdrawal only if you have been an NPS subscriber for at least three years.

• You make only three partial withdrawals during the entire tenure of your NPS account.

• Only 25% of your contribution between two partial withdrawals can be withdrawn.

According to NPS Trust, partial withdrawal is allowed for the following reasons:

• Higher education for your children, including a legally adopted child

• Marriage of your children, including those legally adopted

• Purchase or construction of a residential house or flat in your name or a joint name with your legally wedded spouse

• Specified illnesses that involve hospitalisation and treatment, either of yourself or your legally wedded spouse, your children (including those legally adopted), or dependent parents

• Meeting your medical and incidental expenses arising out of a disability or incapacitation suffered

• Meeting your expenses for skill development or re-skilling, or any other self-development activities, as permitted by PFRDA

• Establishment of your venture or start-up, as permitted under PFRDA guidelines

The following 14 specific diseases are covered for partial withdrawal:

Cancer, primary pulmonary arterial hypertension, Kidney failure (end-stage renal failure), multiple sclerosis, major organ transplant, coronary artery bypass graft, aorta graft surgery, heart valve surgery, stroke, myocardial infarction, coma, total blindness, paralysis, or accident of a serious or life-threatening nature.