Tapping your NPS before you retire: the 25% partial-withdrawal rule and when it is allowed

Most people treat the National Pension System as money they cannot touch until 60. That is very nearly true, but not quite. A Tier I account carries a narrow escape hatch: a partial withdrawal of up to 25 per cent of what you yourself have paid in, available after three years in the scheme, for a short list of approved reasons. On 19 December 2025 the Pension Fund Regulatory and Development Authority rewrote it, and the version now in force is both more generous and more restrictive than the one most explainers still describe.

The changes cut both ways. You may now take four partial withdrawals before 60 instead of three, and keep taking them after 60 until you are 85, which was not previously possible at all. But two old reasons for withdrawing — funding your own re-skilling, and starting a venture — were deleted outright on that date.

The Scheme Explained

The governing instrument is the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, as last amended on 16 December 2025 and announced on 19 December 2025. Partial withdrawal applies to Tier I only: Tier II is an open-access account from which a subscriber may withdraw in full or in part at any time, with no limit on frequency.

Eligibility turns on one date: the day you subscribed to the pension scheme. PFRDA's All Citizen Model FAQ, updated in March 2026, states that "a subscriber becomes eligible to apply for partial withdrawal after completion of three years from the date of subscription to the pension scheme." That clock is not waived by age: somebody who joins at 62 must wait until 65, while somebody who joined at 45 may withdraw the moment they turn 60.

The 25 per cent is the part that catches people out, because it is not 25 per cent of the account. It is 25 per cent of your own contributions, "excluding any appreciation or returns thereon". Employer contributions are outside the base entirely, and so is every rupee of investment growth. On a Tier I account worth Rs 10 lakh built from Rs 5 lakh of your own money, the ceiling is Rs 1.25 lakh, not Rs 2.5 lakh — PFRDA's own illustration uses exactly these figures. The longer the account compounds, the smaller the withdrawable share of it becomes.

Second and later withdrawals shrink further, because the base resets to the incremental own contributions made since the previous withdrawal. A subscriber who withdrew six years ago and has since contributed Rs 1 lakh of her own money may take Rs 25,000, however large the account has grown. One relief applies: if you drew less than your entitlement last time, the unused portion carries forward and is added to the fresh 25 per cent.

If you hold more than one individual pension account under your PRAN, the provisions apply separately to each, on its own three-year clock and contribution base. And if hospitalisation prevents you filing, PFRDA confirms that "the request for withdrawal may be submitted through any family member of such subscriber." Model the effect on your balance with the NPS calculator.

What Changed on 19 December 2025

The amendment was aimed mainly at the non-government sector and applies uniformly to common schemes and to those under the Multiple Scheme Framework. On partial withdrawal, five things moved.

The medical change is the most consequential. Previously you had to match your condition to a closed list of specified critical illnesses, and a serious but unlisted one did not qualify. PFRDA now covers medical treatment or hospitalisation of the subscriber, spouse, children or parents "without a specified list" — turning a narrow catastrophe cover into a workable route for a hospital bill.

The extension to 85 pairs with a separate change in the same amendment: maximum entry and exit ages were both raised to 85, from an entry age of 70 and an exit age of 75. A subscriber who does not exit at 60 now continues automatically, with the whole balance still invested, and may withdraw every three years throughout — a new drawdown lever worth testing in our retirement drawdown calculator. Separately, a subscriber may now let a regulated financial institution mark a lien or charge on the pension account, capped at the same 25 per cent of own contributions.

The Six Permitted Purposes

A withdrawal may be taken "for the following specific purposes only".

The housing restriction is the one most likely to be misread: a single withdrawal in your entire NPS life, and prior ownership of any non-ancestral house or flat disqualifies you outright. Every other purpose may be used more than once, subject to the four-year gap.

Note what is absent. Repaying an unsecured personal loan does not qualify unless it is a regulated-lender obligation secured against the pension account itself. Nor does general living expense, a business need, or your own education — the last two having been removed on 19 December 2025.

Tax on Withdrawal

The exemption lives in section 10(12B) of the Income-tax Act, 1961, inserted with effect from assessment year 2018-19. It exempts a payment from the National Pension System Trust to an employee, on partial withdrawal out of his account, to the extent it does not exceed 25 per cent of the amount of contributions made by him. Two conditions are embedded in that wording.

First, the exemption is capped at the same 25 per cent of own contributions as the regulatory limit, so a withdrawal within PFRDA's rules is fully exempt and there is no separate computation to perform. Second, it must be made in accordance with the PFRDA Act, 2013 and the regulations under it: the exemption is parasitic on regulatory compliance. Note too that section 10(12B) refers to a payment to an employee; self-employed All Citizen Model subscribers should take specific advice rather than assume it reads across, since PFRDA's FAQ says only that tax benefits on exit are "as per the extant Income Tax Act, 1961."

Nothing here touches capital gains: the payment is an exempt receipt, not a transfer of a capital asset, so there is no holding-period or indexation test. That is cleaner than redeeming an equity fund, where gains above Rs 1.25 lakh a year are taxed at 12.5 per cent.

The contrast is with the money you eventually draw as pension, which is taxable in the year of receipt at slab rates. Under the new regime slabs for FY 2025-26, income up to Rs 4 lakh is nil-rated, Rs 4 lakh to Rs 8 lakh is taxed at 5 per cent and Rs 8 lakh to Rs 12 lakh at 10 per cent, with a standard deduction of Rs 75,000 and a section 87A rebate of up to Rs 60,000 for total income up to Rs 12 lakh. A retiree whose annuity is the bulk of her income often pays little or nothing, which is a reason not to over-weight the tax argument when choosing between annuity and lump sum; the annuity versus SWP calculator puts numbers on that. On the deduction side, section 80CCD(1B) is NOT available in the new tax regime. The additional Rs 50,000 deduction for your own NPS contributions under section 80CCD(1B) can be claimed only under the old regime; it is not allowed in the new regime.

Worked Drawdown

Take a subscriber who joined NPS in April 2016 at 32, in the All Citizen Model, contributing Rs 50,000 of her own money each year for ten years. By 31 March 2026 her own contributions total Rs 5,00,000. Employer contributions and market returns are excluded, so the size of the account is irrelevant to what follows.

Three things fall out. The four-year gap, not the amount, is the binding constraint: she is eligible in September 2026 and not again until September 2030. The carry-forward is real money, lifting her 2030 entitlement from Rs 60,000 to Rs 1,05,000. And the totals reconcile: Rs 3,60,000 drawn against Rs 14,40,000 of own contributions is exactly 25 per cent — a ceiling enforced across a lifetime, not at a single moment.

Having used all four pre-60 withdrawals by 54, she waits until she turns 60 in 2044. From there a three-year cycle running to 85 leaves room for nine further occasions, each capped at 25 per cent of the incremental own contributions since the previous draw. If she stops contributing at 60, that base is nil and the entitlement is nil with it.

The cost of drawing early is not the withdrawal but the compounding it removes. Because the 25 per cent is computed on contributions and never on returns, every rupee withdrawn is principal leaving a tax-sheltered wrapper decades early. The corpus financing your annuity is smaller for the rest of your life, not just for that year.

That matters because of how the money is finally released. Under the same December 2025 amendment, a non-government subscriber taking normal exit may take up to 80 per cent as lump sum against a minimum 20 per cent annuity, improved from the earlier 60:40 split, with full lump sum available where accumulated pension wealth is Rs 8 lakh or less. Between Rs 8 lakh and Rs 12 lakh the choice is up to Rs 6 lakh as lump sum with the balance as annuity or systematic unit redemption over at least six years, or the standard 80:20; above Rs 12 lakh only the 80:20 applies. Premature exit is harsher, at up to 20 per cent lump sum and at least 80 per cent annuity, with 100 per cent available only where the corpus is Rs 5 lakh or less. A withdrawal that drags the eventual corpus below one of those thresholds can change the shape of the whole exit. Background on the NPS structure sits in our glossary.

FAQ

Can I withdraw 25 per cent of my NPS balance?

No. The limit is 25 per cent of your own contributions, excluding all investment returns and all employer contributions. PFRDA's March 2026 FAQ illustrates the point with an account holding Rs 10 lakh of accumulated pension wealth built on Rs 5 lakh of own contributions: the permissible withdrawal is Rs 1.25 lakh, not Rs 2.5 lakh.

How many partial withdrawals am I allowed?

Four before you turn 60 or superannuate, whichever is later, with a minimum gap of four years between any two. After 60 there is no cap on the number, but the gap becomes three years and the facility ends at 85. The pre-19 December 2025 position, which many sources still repeat, was three withdrawals in total with no stipulated interval.

Can I still withdraw to start a business or pay for a course?

No. Establishing a start-up or own venture, and skill development or re-skilling, were both removed on 19 December 2025. Six purposes remain: children's higher education, children's marriage, one-time house purchase or construction, medical treatment or hospitalisation, disability-related expenses, and settlement of a financial obligation secured against the pension account.

Do I still need a listed critical illness to withdraw on medical grounds?

No. The closed list of specified critical illnesses was replaced in December 2025 with a general ground covering medical treatment or hospitalisation of yourself, your legally wedded spouse, your children including legally adopted children, or your parents.

Is the withdrawal taxable?

A partial withdrawal within the rules is exempt under section 10(12B) of the Income-tax Act, 1961, inserted with effect from assessment year 2018-19, to the extent it does not exceed 25 per cent of your own contributions and is made in accordance with the PFRDA Act, 2013 and the regulations under it. Self-employed subscribers should note the provision is worded as a payment to an employee.

What happens if I withdraw less than my full entitlement?

The unused portion carries forward. At your next withdrawal you may take 25 per cent of the incremental own contributions made since the last one plus the unutilised part of the earlier limit, as PFRDA's March 2026 FAQ confirms.

Can I take a partial withdrawal after I turn 60?

Yes, and this is new. Provided you have completed three years in the scheme, you may withdraw immediately on turning 60 and every three years thereafter until 85. The amount is calculated only on incremental own contributions made since your last withdrawal, so it depends on your continuing to contribute after 60. Applications go through your Point of Presence.

Sources: PFRDA, Key amendments in PFRDA (Exits and Withdrawals under the NPS) Regulations, 2015, press release dated 19 December 2025; PFRDA, FAQs on Exits and Withdrawals from NPS for All Citizen Model, updated March 2026; PFRDA, (Exits and Withdrawals under the National Pension System) (Amendment) Regulations, 2025; Section 10(12B), Income-tax Act, 1961.