NPS Partial Withdrawal Rules Explained: When You Can Tap Your Retirement Corpus Before 60 Without Exiting

Most subscribers treat the National Pension System (NPS) as a one-way street: money goes in until 60, and nothing comes out until you exit. That is not what the rulebook says. Under the PFRDA (Exits and Withdrawals under NPS) Regulations 2015, and clarified by PFRDA circular PFRDA/2022/40/ASP-EXIT/04 dated 23 December 2022, a Tier I subscriber can withdraw up to 25% of their own contributions, up to three times, while keeping the account fully alive. This matters because the alternative for a mid-career emergency is usually a premature exit, which forces 80% of your corpus into an annuity and permanently ends compounding.

This guide explains the partial-withdrawal mechanism, how it is taxed under Section 10(12B) of the Income-tax Act, and how it compares with a full premature exit through a multi-year worked example. The short version: a partial withdrawal preserves the account, is tax-free within the 25% cap, and can be repeated, whereas a premature exit before 60 annuitises 80% of the corpus and is irreversible. For NRIs and salaried subscribers weighing this against breaking a PPF or fixed deposit, the partial-withdrawal route is almost always the cheaper liquidity event.

The Scheme Explained

The NPS is a defined-contribution pension product regulated by the Pension Fund Regulatory and Development Authority (PFRDA). A Tier I account is the retirement account with restricted liquidity; a Tier II account is a voluntary, fully liquid add-on with no withdrawal limits and no tax shelter on exit. Partial withdrawal rules apply only to the Tier I account, because Tier II money can be taken out at any time.

To make a partial withdrawal from Tier I, three conditions must all be met as laid out in Regulation 8 of the 2015 regulations:

The 25% ceiling is the single most misread figure in the system. It is 25% of the contributions you personally paid in, not 25% of the account balance. If your Tier I corpus has grown to Rs 18 lakh but you only contributed Rs 6 lakh of that yourself, the maximum you can take out is Rs 1.5 lakh, not Rs 4.5 lakh. Employer contributions under Section 80CCD(2) and the market gains on the whole pot are ring-fenced and stay invested.

For a second or third withdrawal, PFRDA counts only the fresh contributions you have added since the previous withdrawal. So you cannot keep drawing 25% of the same cumulative pile every time; the base resets to incremental contributions. This is why frequent, small withdrawals are less efficient than one larger draw.

The permitted purposes are specific and you must declare one of them. Per the active PFRDA circular dated 23 December 2022, withdrawal is allowed for: higher education of children (including a legally adopted child); marriage of children; purchase or construction of a first residential house or flat (not permitted if you already own a house other than an ancestral one); treatment of specified illnesses such as cancer, kidney failure, primary pulmonary arterial hypertension, multiple sclerosis, major organ transplant, coronary artery bypass, stroke, or heart-valve surgery for self, spouse, children or dependent parents; medical and incidental expenses arising from a disability of more than 75%; skilling or re-skilling expenses; and setting up your own venture or start-up.

A practical note on processing: as of the 23 December 2022 circular, partial withdrawal requests are routed through the subscriber's associated nodal office or the Central Recordkeeping Agency (CRA), and the self-declaration of purpose is taken on record rather than requiring upfront documentary proof for most categories. The amount is credited to the registered bank account, typically within a few working days of authorisation. There is no charge levied by PFRDA on the withdrawal itself, which keeps the net cost at zero, unlike the redemption load or exit penalty you might pay on other instruments.

It also helps to be clear about what stays untouched. After a partial withdrawal, your investment choice (Active or Auto), your fund manager, and your asset allocation between equity, corporate bonds, and government securities all continue exactly as before. The withdrawal simply reduces the units held; it does not reset your scheme preference or your three-year clock, and you remain eligible to claim deductions on fresh contributions in the years that follow.

What partial withdrawal is not: it is not a loan, so there is no interest and nothing to repay; and it does not reduce your annuitisation obligation at 60. To understand how the full exit works once you turn 60, see the annuity vs SWP comparison and our recent explainer on Systematic Lump Sum Withdrawal, which lets retirees draw the 60% lump sum as a monthly stream up to age 75.

Tax on Withdrawal

This is where partial withdrawal beats almost every other liquidity option an Indian saver has. Under Section 10(12B) of the Income-tax Act 1961, any partial withdrawal from a Tier I NPS account, up to 25% of the subscriber's own contributions, is fully exempt from income tax. The exemption is unconditional on the withdrawal amount within that cap, and it applies whether you are in the old regime or the new regime, because it is an exemption on a receipt, not a deduction from income.

Contrast that with the tax treatment of the other exit routes, all sourced from the Income-tax Act as published on incometax.gov.in:

The contrast with breaking other instruments is stark. If you redeem an equity mutual fund to raise the same cash, long-term capital gains above Rs 1.25 lakh are taxed at 12.5% under the Budget 2024 rules (effective 23 July 2024). Premature closure of a PPF triggers a 1% interest penalty on the entire accrued balance. A partial NPS withdrawal carries neither a tax charge nor a penalty, which is why a Certified Financial Planner will usually rank it ahead of liquidating an investment corpus for a one-off expense.

Two cautions. First, the contribution that originally earned you a deduction under Section 80CCD(1) or 80CCD(1B) is not clawed back on partial withdrawal, but remember that the additional Rs 50,000 deduction under Section 80CCD(1B) is not allowed in the new regime; 80CCD(1B) is available only under the old regime for FY 2025-26. Second, the 25% exemption is on your contributions only; any portion attributable to employer contribution or growth is, by construction, outside what you are even allowed to withdraw, so the exemption and the withdrawal cap line up neatly.

Worked Drawdown

Consider Anjali, who joined NPS at age 30 and contributes Rs 1,00,000 a year to her Tier I account. Her employer adds Rs 60,000 a year under Section 80CCD(2). We will assume an illustrative 10% annualised return (NPS returns are market-linked and not guaranteed; this is purely for arithmetic). The point of the exercise is to show how the 25%-of-own-contributions cap moves over time, and how three well-timed partial withdrawals compare with a single premature exit.

By age 38, Anjali has been a member for 8 years, comfortably past the 3-year minimum. Her cumulative own contributions stand at Rs 8,00,000. She needs Rs 1,50,000 for her child's school admission, a permitted education purpose.

Notice the reset. At age 45 the eligibility is calculated on the Rs 7,00,000 she has contributed since the first withdrawal at 38, not on her lifetime total. The same applies at 52. Across her working life she draws Rs 1,50,000 + Rs 1,50,000 + Rs 1,75,000 = Rs 4,75,000, every rupee of it exempt under Section 10(12B), and she has now used all three permitted withdrawals.

Crucially, the account never closed. Her remaining balance, employer contributions, and the entire return engine kept compounding throughout. Had she instead taken a premature exit at 38 to access cash, she would have been forced to annuitise 80% of her then-corpus and receive only 20% as a lump sum, ending the pension build permanently. Run your own numbers through the NPS calculator and model the post-60 phase with the retirement drawdown calculator.

At 60, Anjali superannuates. Suppose her Tier I corpus is Rs 1.4 crore. She can withdraw up to 60%, that is Rs 84 lakh, tax-free under Section 10(12A). The remaining 40%, Rs 56 lakh, must buy an annuity, whose monthly pension will be taxed at her slab rate in each year of receipt. Whether to take the 60% as one lump sum or as a Systematic Lump Sum Withdrawal up to age 75 is the next decision, and it turns on her liquidity needs and her marginal tax rate, not on the partial-withdrawal rules covered here.

One comparison worth holding onto: partial withdrawal is the only NPS exit that lets you take money out and keep the engine running. Premature exit, by contrast, is a hard stop. For most mid-career emergencies, the three partial withdrawals are sufficient, and they preserve decades of future compounding that a premature exit would forfeit.

FAQ

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

A maximum of three times during the entire tenure of your Tier I subscription, per Regulation 8 of the PFRDA (Exits and Withdrawals under NPS) Regulations 2015. There is no longer a mandatory gap of years between withdrawals, but each must be for a permitted purpose, and the 25% cap on the second and third draws applies only to contributions made after the previous withdrawal.

Is the 25% limit on my total corpus or only my contributions?

Only your own contributions. Employer contributions made under Section 80CCD(2) and the investment returns on the whole corpus are excluded from the base. If you contributed Rs 6,00,000 yourself, the most you can ever take in a single partial withdrawal is Rs 1,50,000, regardless of how large the account has grown.

Do I pay tax on an NPS partial withdrawal?

No. Section 10(12B) of the Income-tax Act 1961 exempts partial withdrawals up to 25% of your own contributions from income tax, and this exemption applies in both the old and new tax regimes. It is one of the few genuinely tax-free liquidity events available to an Indian retirement saver.

How long must I wait after joining before I can withdraw?

At least three years from your date of joining NPS. This is a fixed eligibility condition under the 2015 regulations and the active PFRDA circular dated 23 December 2022; there are no exceptions for shorter tenures.

Can I withdraw for any reason I like?

No. You must declare one of the permitted purposes: higher education or marriage of children, purchase or construction of a first home, treatment of a specified illness for self or family, expenses linked to a disability above 75%, skilling or re-skilling, or setting up your own venture. A general cash crunch with no qualifying purpose does not qualify.

Is partial withdrawal better than a premature exit?

In almost every case, yes. A partial withdrawal keeps the account alive and is tax-free within the cap. A premature exit before 60 forces 80% of the corpus into a compulsory annuity, releases only 20% as a lump sum, and ends compounding for good. Reserve premature exit for situations where you genuinely need to close the account.

Does a partial withdrawal reduce how much I must annuitise at 60?

No. The mandatory annuitisation of at least 40% of your corpus at superannuation, and the tax-free 60% lump sum under Section 10(12A), are calculated on the corpus standing at age 60, independent of any partial withdrawals you took earlier. Partial withdrawals simply lower that final corpus by the amount withdrawn.