PFRDA lets you take a loan against your NPS corpus. Here's when that's a good idea and when it isn't

National Pension System (NPS) allows you to choose between various pension investment options, so you can plan your retirement the way you want. The best part about NPS is that it is regulated by the Pension Fund Regulatory & Development Authority (PFRDA) which provides transparent pension investment norms, regular monitoring and performance review of funds managed by the NPS Trust. It is one of the lowest costing pension plans in India.

Loan against NPS: Here's when that's a good idea and when it isn't

With this new facility subscribers can meet short-term liquidity requirements as they remain invested in the NPS scheme. It has permitted lenders to place a ‘lein’ on NPS accounts.

"PFRDA allows subscribers to take a loan against their NPS corpus by creating a lien, and this is not treated as a withdrawal. So, from a tax point of view, there is no immediate tax liability when you take the loan. This makes it a good option if you need funds but want to avoid triggering tax that would apply in case of a partial withdrawal," said Abhishek Soni, CEO & Co-founder, Tax2win.

"However, it may not be a good idea if repayment becomes difficult or if it disrupts your long-term retirement planning. NPS offers tax benefits on contributions and partial tax-free withdrawal at retirement, and using it casually for loans can weaken the overall tax efficiency of your retirement strategy," added Abhishek Soni.

Loan against NPS vs partial withdrawal: What’s the difference?

• Partial withdrawal

• Loan against the NPS account

Both routes allow access to up to 25% of the subscriber’s own contributions (excluding employer contributions and returns).

NPS Partial withdrawal

Under this option, subscribers can withdraw part of their contributions for specific approved needs such as higher education, medical emergencies, marriage expenses, or purchasing a home.

However, the withdrawn amount is permanently deducted from the retirement corpus, which could impact long-term savings and pension accumulation.

Loan against NPS

Unlike a withdrawal, the invested funds remain in the account and continue to earn returns. Once the loan is repaid, full access and control over the account are restored, preserving the retirement corpus.

Disclaimer: This article is written purely for informational purposes and should not be considered investment advice from Upstox. Investors should do their own research or consult a registered financial advisor before making investment decisions.