NPS Partial Withdrawal Rules: Take Up to 25% of Your Own Contributions, Only Three Times, After Three Years

Most subscribers open a National Pension System (NPS) Tier I account believing it is locked shut until age 60. It is not. Since the Pension Fund Regulatory and Development Authority (PFRDA) notified its partial-withdrawal framework, a Tier I subscriber can pull cash out mid-tenure — but only within three hard limits that trip up thousands of applications every year: 25% of your own contributions, a maximum of three times, and never before completing three years in the scheme. Get any one of those wrong and the request is rejected by the Central Recordkeeping Agency.

This piece sets the NPS Tier I partial-withdrawal rules against the more familiar Public Provident Fund (PPF) partial-withdrawal route, works through a multi-year drawdown example rupee by rupee, and maps the tax treatment under Sections 10(12A) and 10(12B) of the Income-tax Act, 1961. Every figure below is drawn from the PFRDA exit FAQs and the central rate configuration Oquilia maintains for the July-September 2026 quarter.

The Scheme Explained

NPS Tier I is the pension-locked tier — as distinct from the fully liquid Tier II — and its partial-withdrawal facility is governed by the PFRDA (Exits and Withdrawals under NPS) Regulations. The core arithmetic is narrower than most subscribers assume. The 25% cap applies to your own accumulated contributions only, excluding the market appreciation on them. If you contributed Rs 3,60,000 over six years and the corpus has grown to Rs 4,80,000, your withdrawal ceiling is 25% of Rs 3,60,000 (Rs 90,000), not 25% of Rs 4,80,000 (Rs 1,20,000). The PFRDA FAQ is explicit that returns are "without considering the appreciation" on the contributed amount.

Three eligibility gates apply simultaneously, and all three must be cleared:

The purpose test is where NPS is materially stricter than PPF. A PPF partial withdrawal from the seventh year needs no justification, but an NPS partial withdrawal is permitted only for a defined list of life events. Per the PFRDA exit FAQ, the permitted reasons are: higher education of children (including legally adopted children); marriage of children; purchase or construction of a residential house (not available if you already own a house, individually or jointly, other than an ancestral property); treatment of specified critical illnesses such as cancer, kidney failure, stroke, paralysis and other life-threatening conditions; medical expenses arising from disability or incapacitation; skill development or self-improvement; and setting up a new business or start-up.

The three-withdrawals-per-tenure ceiling is a lifetime count, not an annual one. A subscriber who joins at 30 and exits at 60 has a 30-year window but still only three partial withdrawals across those three decades — so the facility is best reserved for genuinely large, non-negotiable outlays rather than routine liquidity. You can model how each withdrawal dents your final corpus using the NPS calculator, which projects the compounding cost of removing money early.

Two structural points reduce friction in practice. First, the request is made online through the Central Recordkeeping Agency with a self-declaration of the qualifying reason, so no upfront documentary proof is demanded at the point of withdrawal for most categories under the current PFRDA process. Second, the money leaves the Tier I account permanently — unlike a PPF loan taken between the third and sixth financial years, an NPS partial withdrawal is not repaid, so it directly and permanently shrinks the compounding base. That distinction is why NPS partial withdrawals should be weighed against alternatives: an Employees' Provident Fund (EPF) advance, currently earning 8.25% for FY 2025-26, or a Senior Citizens' Savings Scheme deposit at 8.2% for the July-September 2026 quarter, may be cheaper sources of the same cash depending on your stage.

For context on where this facility sits in the wider drawdown toolkit, see our glossary entry on the NPS and on the pension corpus it is designed to protect.

Tax on Withdrawal

The tax code treats NPS money differently at three distinct stages — partial withdrawal, lumpsum at exit, and the annuity that follows — and conflating them is the single most common error in retirement planning conversations.

Partial withdrawal (Section 10(12B)). A partial withdrawal of up to 25% of your own contributions from a Tier I account is fully exempt from income tax under Section 10(12B) of the Income-tax Act, 1961, provided it meets the PFRDA purpose test. This is one of the few genuinely tax-free liquidity events available inside a retirement product, and it is why the 25%-of-own-contributions definition matters so much: only the exempt slice qualifies.

Lumpsum at exit (Section 10(12A)). At superannuation (age 60 or on reaching the retirement age set by your employer), up to 60% of the accumulated pension wealth can be taken as a lumpsum, and that 60% is exempt under Section 10(12A). If your total corpus at exit is Rs 5,00,000 or less, PFRDA rules let you withdraw 100% with no compulsory annuity — and the whole amount remains exempt.

Annuity income (slab rates). The remaining minimum 40% must be used to purchase an annuity from a PFRDA-empanelled life insurer. The purchase itself is not taxed, but the monthly annuity you subsequently receive is taxable at your applicable slab rate as pension income. This is the leg most people forget: the annuity converts a tax-free corpus into a taxable income stream for life.

A word on the contribution side, because it shapes the whole decision. The additional deduction of Rs 50,000 under Section 80CCD(1B) is NOT allowed in the new tax regime — it is available only under the old regime, which most taxpayers have now left for FY 2025-26. The employer-contribution deduction under Section 80CCD(2), however, survives in the new regime and is allowed up to 14% of basic salary plus dearness allowance. If you are weighing the two regimes, the new regime's raised Section 87A rebate of Rs 60,000 (up to Rs 12,00,000 of income) changes the maths considerably; our tax calculators walk through both.

Worked Drawdown

Consider Meera, who joined NPS at age 30 in April 2020 and contributes Rs 5,000 a month (Rs 60,000 a year) into her own Tier I account. Assume her fund compounds at an illustrative 10% a year — NPS is market-linked, so this is a scenario figure, not a guaranteed rate. The table below tracks her own-contribution balance and the resulting 25% partial-withdrawal ceiling.

Note how the ceiling climbs purely with fresh contributions, not with investment growth: even if Meera's corpus doubles on strong equity returns, her withdrawal cap tracks only the Rs 60,000-a-year she puts in. If she draws Rs 90,000 in 2025-26 for her child's higher education, that is exempt under Section 10(12B) and counts as withdrawal one of three. A second withdrawal for a house deposit and a third for a medical emergency would exhaust her lifetime quota, after which the Tier I account is locked to fresh withdrawals until exit.

Now the exit-stage drawdown. Suppose Meera reaches age 60 in 2050 with a corpus of Rs 1,00,00,000. Her mandatory split is:

• Lumpsum (60%): Rs 60,00,000 — exempt under Section 10(12A).
• Annuity purchase (40%): Rs 40,00,000 — buys a lifelong pension.

At an illustrative annuity rate of 6% a year (annuity rates are set by insurers, not PFRDA, so this varies), Rs 40,00,000 yields roughly Rs 2,40,000 a year, or Rs 20,000 a month, taxable at her slab. Whether that annuity beats a systematic withdrawal plan (SWP) on the same 40% is exactly the trade-off our annuity vs SWP calculator is built to test, and the broader sequencing question is covered by the retirement drawdown calculator. For the definitions behind these tools, see the glossary entry on annuities.

There is also a compounding cost worth spelling out. Had Meera left her Rs 90,000 invested from 2025-26 to her exit in 2050 — a 25-year runway — that single withdrawal would have grown to roughly Rs 9,75,000 at the same illustrative 10% a year. The Rs 90,000 she takes tax-free today therefore carries a real opportunity cost close to ten times its face value at retirement, which is the strongest argument for treating the three-withdrawal quota as a genuine last resort rather than a convenience.

The strategic takeaway: because NPS partial withdrawals are capped at 25% of contributions and limited to three lifetime uses, they are a scarce, tax-free emergency line — not a substitute for a liquid PPF, whose 7.1% for the July-September 2026 quarter and no-questions-asked seventh-year withdrawals make it the better routine liquidity buffer. Used together, NPS handles the pension and the rare large shock; PPF handles the recurring one.

FAQ

How much can I withdraw from my NPS Tier I account before 60?

Up to 25% of your own contributions, excluding the investment returns on them, per the PFRDA exit regulations. If you have contributed Rs 4,00,000 in total, the maximum partial withdrawal is Rs 1,00,000 regardless of how much the corpus has grown. Employer contributions are not counted in the 25% base for this calculation.

How many times can I make a partial withdrawal?

A maximum of three times over the entire tenure of your NPS subscription, as specified by PFRDA. This is a lifetime cap, not an annual limit, so a subscriber with a 30-year horizon still gets only three withdrawals. There is no mandatory waiting period prescribed between the three withdrawals.

When does the three-year clock start?

From the date you joined NPS, not from each contribution. You must complete three years of membership before the first partial withdrawal is permitted. A subscriber who joined in April 2023 becomes eligible from April 2026, subject also to meeting one of the prescribed purposes.

Is the partial withdrawal taxed?

No. A partial withdrawal of up to 25% of your own contributions is fully exempt under Section 10(12B) of the Income-tax Act, 1961, provided it is for a PFRDA-permitted reason such as illness, a child's higher education or marriage, or house purchase. This exemption applies under both the old and new tax regimes.

What counts as a permitted reason?

Higher education of children, marriage of children, purchase or construction of a residential house (barred if you already own one other than ancestral property), treatment of specified critical illnesses, medical costs from disability, skill development, and setting up a new business — as listed in the PFRDA exit FAQ. A partial withdrawal cannot be taken simply because you want liquidity.

How is NPS different from PPF for withdrawals?

PPF allows one partial withdrawal per year from the seventh financial year, up to 50% of the balance at the end of the fourth preceding year, with no reason required and full tax exemption (EEE). NPS caps you at 25% of contributions, three times, after three years, and only for prescribed reasons. PPF is the routine liquidity tool; NPS partial withdrawal is the tax-free emergency backstop.

Can I withdraw my whole NPS corpus at 60?

Only if it is Rs 5,00,000 or less — then 100% can be withdrawn tax-free. Above that threshold, at least 40% must buy an annuity and up to 60% comes to you as a lumpsum exempt under Section 10(12A), with the annuity income taxed at your slab thereafter.