NPS partial withdrawal rules: take up to 25% of your own contributions for set life needs

The National Pension System (NPS) is designed as a locked, long-horizon retirement vehicle, but life rarely waits for age 60. To bridge that gap, the Pension Fund Regulatory and Development Authority (PFRDA) allows a limited, purpose-tied partial withdrawal from a Tier I account. Under PFRDA circular PFRDA/2022/40/ASP-EXIT/04 dated 23 December 2022, a subscriber may take out up to 25% of their own contributions, after a minimum of three years of membership, up to three times during the life of the account.

This piece explains how that 25% rule actually works, how it compares with a full premature exit and with the Systematic Lump Sum Withdrawal (SLW) option, and how the tax treatment under Section 10(12B) of the Income-tax Act, 1961 keeps a correctly-purposed withdrawal completely tax-free. If you want to model the numbers as you read, keep the NPS calculator open in a second tab.

The Scheme Explained

Partial withdrawal is a facility on the Tier I account only; the voluntary Tier I-linked Tier II wallet has no lock-in and needs no permission to draw from. To qualify for a partial withdrawal in 2026, four conditions from the 23 December 2022 PFRDA circular must all hold at once. First, you must have been a subscriber for at least three years from the date of joining. Second, the amount cannot exceed 25% of the contributions you have made, measured on the date of the request. Third, the employer share and the accumulated market returns on your money are excluded from that 25% base. Fourth, the total number of partial withdrawals across your entire NPS tenure is capped at three.

The purpose test is equally strict. PFRDA permits a partial withdrawal only for the higher education of your children, the marriage of your children, the purchase or construction of a residential house or flat, and the treatment of specified illnesses. A withdrawal request routed through your Point of Presence (PoP) or the Central Recordkeeping Agency (CRA) must declare one of these grounds; a general "I need cash" claim is not admissible under the circular.

A crucial and widely misunderstood detail is the 25% base. Because the cap is a percentage of your own contributions and not of the total corpus, the eligible amount grows only as fast as your fresh contributions accumulate, not as fast as the fund value. A subscriber whose corpus has doubled on strong equity returns still gets 25% of contributions, not 25% of the swollen fund. This design deliberately protects the compounding engine of the account, since the untouched returns keep working until you exit.

For subscribers who have been contributing for years, the practical mechanics run through the CRA login: you raise the request online, self-declare the purpose, and the eligible 25% figure is computed by the system from your contribution ledger. PFRDA removed the earlier requirement of a mandatory documentary sub-limit for smaller withdrawals, but the self-declaration is a legal statement and the account is subject to later verification.

Partial Withdrawal vs Premature Exit vs SLW

The 25% partial withdrawal is only one of three ways to pull money out of NPS before the natural end of the pension phase, and choosing the wrong one can permanently shrink your pension. The table below compares the three on the levers that matter for a drawdown plan in FY 2026-27.

A premature exit before age 60 is the bluntest instrument: PFRDA rules require that at least 80% of the corpus be used to buy an annuity, leaving only 20% as a lump sum, and the account closes for good. By contrast, the partial withdrawal keeps the account open and the other 75%-plus of your money compounding. The SLW route, covered in our guide on NPS Systematic Lump Sum Withdrawal, is a post-retirement tool that lets you stagger up to 60% of the corpus in instalments up to age 75, whereas partial withdrawal is a pre-retirement bridge. If you are weighing an annuity against a phased drawdown for the retirement phase itself, model both in the annuity vs SWP calculator.

Tax on Withdrawal

The single best feature of a correctly-purposed partial withdrawal is that it is entirely tax-free. Section 10(12B) of the Income-tax Act, 1961, inserted with effect from assessment year 2018-19, exempts any partial withdrawal from the NPS Tier I account to the extent it does not exceed 25% of the employee's own contributions. Because the PFRDA cap and the tax exemption limit are both pegged to the same 25%-of-own-contributions figure, a within-rules withdrawal carries a nil tax liability under both the old and the new regime.

This is a sharp contrast with the tax on other NPS money movements, summarised below. Note that the Rs 50,000 deduction under Section 80CCD(1B) is not allowed in the new regime; it can be claimed only under the old tax regime for FY 2025-26. The new regime's slabs by contrast start with a nil rate up to Rs 4,00,000 and reach 30% above Rs 24,00,000.

At the natural exit on or after age 60, up to 60% of the corpus is a tax-free lump sum under Section 10(12A), and the mandatory minimum 40% that must buy an annuity is not taxed at the point of purchase; only the monthly annuity is taxed as income in the year received. Keeping the partial-withdrawal facility for genuine mid-life needs therefore preserves the far larger tax-free 60% at the end. For a broader primer on how withdrawal phases are taxed, see our NPS glossary entry.

Worked Drawdown

Consider Ananya, who opens an NPS Tier I account at age 30 in 2026 and contributes Rs 60,000 of her own money each year. The 25% partial-withdrawal cap is applied to her cumulative own contributions on each request date, so the eligible amount grows year on year even though the rule itself never changes. The table traces three permitted withdrawals across her working life.

Two points make this example realistic rather than theoretical. First, each of the three withdrawals is tax-free under Section 10(12B) because none exceeds 25% of Ananya's own contributions at the request date. Second, she has now used all three of her lifetime partial withdrawals by age 52, so any further mid-life need would force a premature exit, which would push a minimum 80% of her corpus into an annuity and close the account. Sequencing the three withdrawals for the highest-value needs is therefore the core of the strategy.

The compounding cost of withdrawing is easy to underestimate. The Rs 1,20,000 Ananya takes at age 38 would, left untouched, have grown for 22 more years to her age-60 exit. At an assumed 9% annual return that single withdrawal represents roughly Rs 7,80,000 of forgone corpus by age 60, calculated as Rs 1,20,000 compounded at 9% over 22 years. That is the price of liquidity, and it is why PFRDA ties the facility to specific, high-priority life events rather than routine spending. Model your own trade-off with the retirement drawdown calculator.

For context on where NPS sits against other retirement rails, the small-savings landscape in Q2 FY 2026-27 (July to September 2026) offers the Public Provident Fund at 7.1%, the Senior Citizens Savings Scheme at 8.2%, and the Employees' Provident Fund at 8.25% for FY 2025-26. None of these carries the market-linked upside of NPS equity exposure, but all three have far simpler withdrawal rules, which is precisely why NPS reserves its partial-withdrawal facility so tightly.

FAQ

How many times can I make a partial withdrawal from NPS?

You may make a maximum of three partial withdrawals during the entire life of your NPS Tier I account, per PFRDA circular PFRDA/2022/40/ASP-EXIT/04 dated 23 December 2022. Each request must be for one of the four permitted purposes, and the three-withdrawal cap is a lifetime limit, not a per-year or per-purpose limit.

What is the minimum time before I can take a partial withdrawal?

You must have been an NPS subscriber for at least three years from your date of joining before your first partial withdrawal, as set out in the 23 December 2022 PFRDA circular. There is no separate cooling-off gap mandated between successive withdrawals beyond the overall cap of three in the account's lifetime.

Is the NPS partial withdrawal taxable?

No. Under Section 10(12B) of the Income-tax Act, 1961, a partial withdrawal from the NPS Tier I account is fully exempt to the extent it does not exceed 25% of the subscriber's own contributions. Because the PFRDA 25% cap and the tax exemption limit coincide, a within-rules withdrawal is tax-free in both the old and the new regime for FY 2025-26.

Can I withdraw 25% of my total corpus?

No. The 25% is calculated on your own contributions only, measured on the date of the request. The employer's share and the market returns earned on your money are both excluded from the base. A large corpus built mostly on investment gains will therefore yield a partial-withdrawal figure far below 25% of the fund value.

For what purposes can I make a partial withdrawal?

PFRDA permits partial withdrawal for the higher education of your children, the marriage of your children, the purchase or construction of a residential house or flat, and the treatment of specified illnesses. The purpose is self-declared through your PoP or the CRA, and the declaration is a legal statement subject to later verification.

Does a partial withdrawal reduce my final pension?

Yes, indirectly. Money you withdraw stops compounding, so the corpus available at exit, and therefore the 60% tax-free lump sum under Section 10(12A) and the annuity bought from the mandatory minimum 40%, are both smaller. A Rs 1,20,000 withdrawal at age 38 can represent roughly Rs 7,80,000 of forgone corpus by age 60 at a 9% return, so use the facility only for genuinely high-priority needs.

Should I use partial withdrawal or a premature exit?

For a mid-life cash need, the partial withdrawal is almost always superior: it keeps your account open, leaves at least 75% of your contributions and all your returns compounding, and is tax-free. A premature exit before age 60 forces a minimum 80% of the corpus into an annuity and closes the account permanently, so it should be a last resort rather than a first choice.