Loan against your NPS account: how the lien works, the 25% cap and using a partial withdrawal to repay the lender

A National Pension System (NPS) account is built to be locked until retirement, yet PFRDA rules now let a Tier-I subscriber use it as security for a loan. The catch is a hard ceiling: a lender can mark a lien on the account only up to the partial-withdrawal limit, which is 25% of the subscriber's own contributions, excluding employer money and investment returns. This explainer walks through how the lien works, how the 25% cap is calculated, how a partial withdrawal can be used to settle the loan, and what that does to the corpus you carry to age 60.

Everything below is drawn from PFRDA's "FAQs - Exits & Withdrawals from NPS for Corporate Sector" (updated March 2026), which is based on the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015 as amended, and from Oquilia's NPS rate file, last updated against the 19 December 2025 amendment. Worked figures are illustrations, not quotes from any lender.

The Scheme Explained

What PFRDA actually allows

Question 65 of the PFRDA corporate-sector FAQ (March 2026) says a subscriber may seek financial assistance from a regulated financial institution against the individual pension account in Tier-I. The subscriber does this by creating an assignment, pledge, lien, charge or other security on the benefits receivable under NPS in favour of the lender. The facility is operated by NPS Trust in line with PFRDA guidelines and circulars.

Three limits in that one answer do most of the work:

1. Tier-I only. The FAQ refers to the individual pension account in Tier-I, the account that carries the retirement lock-in. Tier-II is not mentioned.
2. Regulated lenders only. The counterparty has to be a regulated financial institution, so an informal or unregulated lender cannot take the security under this route.
3. Capped at the partial-withdrawal limit. The lender may mark the lien or charge only up to the partial-withdrawal limit stipulated in the Exit Regulations. This is the 25% cap.

The FAQ does not set an interest rate, a tenure or a processing fee, and Oquilia has no official source for any of them, so this article does not quote one. Those terms sit with the lender.

Why the cap is 25% of your own contributions

The lien piggybacks on the partial-withdrawal rules, so the ceiling is whatever you could have withdrawn yourself on the day. Under the Exit Regulations, as summarised in the PFRDA FAQ and in Oquilia's rate file, that limit is:

Two consequences follow directly from the table. First, employer contributions made under the corporate model are outside the base, so a subscriber whose employer pays Rs 1 lakh a year and who pays Rs 1 lakh a year personally has a lien base built on only the personal Rs 1 lakh. Second, investment returns are excluded, so a corpus that has doubled on paper does not double the amount a lender can secure.

The six permitted purposes for a partial withdrawal

Question 52 of the same FAQ lists why a partial withdrawal may be made. Item (f) is the one this article is about: "settlement of a financial obligation availed by a subscriber from a regulated financial institution against the lien or the charge marked on the individual pension account". The full list is:

The same lien-repayment purpose also appears in PFRDA's NPS-Lite and Swavalamban FAQ, also updated in March 2026, so the facility is not limited to the corporate model. For a broader primer on the scheme, see the NPS glossary entry.

Tax on Withdrawal

The partial withdrawal used to repay the lender

A partial withdrawal from NPS is exempt under section 10(12B) of the Income-tax Act to the extent it does not exceed 25% of the subscriber's own contributions. Because the PFRDA limit is also 25% of own contributions, the two ceilings coincide: the amount you can draw to settle a lien-backed loan is the same amount the Act exempts. Oquilia's rate file, verified on 21 September 2026, notes that the December 2025 amendment did not change this alignment.

That matters because the lien cannot exceed the partial-withdrawal limit either. In the ordinary case, then, the money that leaves the NPS account to clear the loan is within the 25% exemption. The tax position of the loan itself, such as whether any interest is deductible, depends on what the money was used for and is outside the scope of the PFRDA FAQ.

The exit at 60 is where the ceilings diverge

The real tax trap sits at the final exit, not the partial withdrawal. Since the PFRDA amendment notified on 19 December 2025, a non-government subscriber can take up to 80% of the corpus as a lump sum and must annuitise at least 20%. Section 10(12A), however, still exempts the lump sum on closure only up to 60% of the total amount payable, a limit in force since 1 April 2020.

Oquilia has found no Finance Act change aligning section 10(12A) to the new 80% figure, so the tax treatment of the slice between 60% and 80% is not settled by the text of either rule. Readers should confirm that slice with a tax adviser before taking it. Annuity income received later is added to taxable income in the year it is received. See the annuity glossary entry for how that stream works.

Government-sector subscribers remain on a 60% lump sum and 40% annuity split, and NPS-Lite subscribers remain on 60/40 with full withdrawal allowed where the corpus is Rs 2 lakh or less.

Worked Drawdown

The following example is an illustration built only from the PFRDA rules above. It uses round numbers and assumes no investment return, because returns are excluded from the lien base and from the 25% calculation in any case. It does not reflect any lender's terms.

Step 1: building the lien base

Meera joins NPS through her employer at age 35. She contributes Rs 1,00,000 a year from her own salary and her employer contributes Rs 1,00,000 a year. After 6 years she has crossed the 3-year eligibility threshold.

Although Rs 12 lakh has gone into the account, a regulated lender can secure only Rs 1.5 lakh of it, which is 12.5% of total contributions and an even smaller share of the corpus once returns are added.

Step 2: using the first partial withdrawal to settle

At age 41 Meera takes a loan from a regulated lender, which marks a lien of Rs 1,50,000. Suppose she later uses her first partial withdrawal, under purpose (f), to settle the obligation. Rs 1,50,000 leaves the account and is exempt under section 10(12B) because it equals 25% of her own contributions. She has now used 1 of her 4 pre-60 withdrawals and cannot make another for at least 4 years.

Step 3: the next window

Between age 41 and age 45 she contributes another Rs 4,00,000 of her own money. Her second limit is 25% of that incremental amount, or Rs 1,00,000. Had she withdrawn less than Rs 1,50,000 the first time, the unused part would be added on top, as the FAQ allows.

If all four pre-60 withdrawals are used, Rs 4,50,000 of principal leaves the account over 18 years. That is the outer limit of what any lender could ever have secured on her own contributions before 60.

Step 4: what reaches the exit

By age 60 Meera has contributed Rs 25,00,000 of her own (25 years x Rs 1,00,000) and her employer the same, a total of Rs 50,00,000 before returns. If she used one partial withdrawal of Rs 1,50,000 to settle a loan, her contribution base still in the account is Rs 48,50,000, and the compounding on the withdrawn Rs 1,50,000 over the remaining 19 years is lost as well. The NPS calculator can project that forgone growth for any return assumption you choose.

On these figures, a single Rs 1.5 lakh settlement reduces the eventual annuity purchase by Rs 30,000 and the 60% exempt lump sum by Rs 90,000, before any returns are counted. To compare an annuity with a systematic withdrawal plan after 60, use the annuity vs SWP calculator, and to stress-test how long the remaining corpus lasts, use the retirement drawdown calculator.

Step 5: after 60

If Meera defers exit, the post-60 rules apply: any number of partial withdrawals till age 85, at least 3 years apart, each up to 25% of contributions excluding returns. A lien marked after 60 would be capped the same way, so a loan secured at 61 is limited by the 25% figure, not by the size of the corpus.

Using the Lien Sensibly

Three practical points follow from the PFRDA text, and each comes back to a number.

• Check your own-contribution total first. Your Statement of Transactions separates employee and employer contributions. Only the employee column, multiplied by 25%, tells you the lien ceiling.
• Count your remaining withdrawals. You get 4 before 60 with a 4-year gap. Using one to settle a loan at 41 means the next is not available before 45, even for a medical emergency.
• Weigh the forgone growth. A Rs 1,50,000 withdrawal at 41 loses 19 years of compounding by 60. The FIRE calculator shows how much that shortfall shifts a target retirement date.

For readers comparing NPS against other pension products, the pension glossary entry sets out the main categories, and Oquilia's earlier explainer on new NPS PoP charges from 1 October 2026 covers the running cost of keeping the account open. NPS-Lite subscribers should also read the NPS-Lite and Swavalamban exit rules for 2026.

FAQ

Can I take a loan against my NPS account?

Yes, under Question 65 of PFRDA's March 2026 corporate-sector FAQ, a Tier-I subscriber may create a lien, pledge, assignment or charge on NPS benefits in favour of a regulated financial institution. The facility is operated by NPS Trust under PFRDA guidelines.

How much of my NPS corpus can a lender secure?

Only up to the partial-withdrawal limit, which is 25% of your own contributions excluding returns. On Rs 6 lakh of own contributions, that is Rs 1.5 lakh, whatever the market value of the corpus.

Are employer contributions included in the 25% calculation?

No, before age 60 the base is the subscriber's own contributions only. After 60, the base is contributions for a single stream or own contributions where there are multiple streams, and returns are excluded in every case.

Can I use a partial withdrawal to repay the loan?

Yes. Purpose (f) in Question 52 of the PFRDA FAQ permits a partial withdrawal for settling a financial obligation from a regulated financial institution against the lien or charge on the account, subject to the 3-year eligibility and the 4-withdrawal limit before 60.

Is the partial withdrawal used to repay the loan taxable?

Section 10(12B) exempts a partial withdrawal up to 25% of your own contributions, which matches the PFRDA limit. A withdrawal within that limit is exempt.

Does a lien affect my exit at 60?

A lien-backed settlement reduces the contributions left in the account. In the worked example, one Rs 1.5 lakh withdrawal cut the minimum 20% annuity from Rs 10 lakh to Rs 9.7 lakh on a contributions-only basis.

Does the facility apply to NPS-Lite?

PFRDA's NPS-Lite and Swavalamban FAQ, updated in March 2026, lists the same lien-repayment purpose for partial withdrawal. NPS-Lite exit rules remain 60% lump sum and 40% annuity.

Sources: PFRDA, FAQs - Exits & Withdrawals from NPS for Corporate Sector (March 2026); Income Tax Department e-filing portal for sections 10(12A) and 10(12B); PFRDA for the Exit Regulations and the December 2025 amendment. This article is general information, not personalised financial or tax advice.