NPS Exit Framework Just Got a 2025 Refresh: Reading PFRDA New Withdrawal Regulations

On 16 December 2025, the Pension Fund Regulatory and Development Authority (PFRDA) published the Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) (Amendment) Regulations, 2025 on its regulatory-framework page, and PFRDA's press release of 19 December 2025 set out the before-and-after position. The amendment rewrites the 2015 exit regulations that decide how much of a National Pension System (NPS) corpus a subscriber can take as cash at 60, how much must buy an annuity, and what happens on an early exit.

For a non-government subscriber, the headline change is simple: up to 80% of the corpus can now be taken as a lump sum at normal exit, with a minimum of 20% going into an annuity. For the government sector and NPS-Lite, the long-standing 60% lump sum and 40% annuity split continues. Everything that follows in this guide depends on which of those three buckets your Permanent Retirement Account Number (PRAN) sits in, so check that first.

This piece reads the amendment the way a retiree has to use it: which rule applies to you, what the Income-tax Act still says about the cash you take out, and how a Rs 1 crore corpus plays out across the first 10 years of retirement. For background terms, see the Oquilia glossary entries on the National Pension System, annuity and retirement corpus.

The Scheme Explained

NPS is a defined-contribution pension product regulated by PFRDA. You build a corpus during your working years, and the exit regulations decide how that corpus is released. The 2025 amendment, per PFRDA's 19 December 2025 table of key changes, sorts subscribers into three groups with different limits.

Normal exit at 60: the three sector rules

Source: PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025; PFRDA press release, 19 December 2025.

Three points in that table matter most in practice.

First, the 80% ceiling is a non-government rule. A central or state government employee on NPS stays on 60% lump sum, so a government-sector retiree with a Rs 50 lakh corpus can take Rs 30 lakh in cash, while an All Citizen Model subscriber with the same Rs 50 lakh can take up to Rs 40 lakh.

Second, small corpora get a full-cash route. A non-government corpus of Rs 8 lakh or less can be taken entirely as a lump sum, or drawn down through the systematic options the amendment describes, with no compulsory annuity. That threshold is Rs 2 lakh for NPS-Lite.

Third, the Rs 8 lakh to Rs 12 lakh band is a hybrid. On a Rs 10 lakh non-government corpus, the lump-sum portion is capped at Rs 6 lakh and the remaining Rs 4 lakh runs through SUR. Your Central Recordkeeping Agency (CRA) exit form will show the exact options available on your PRAN, and you should confirm the treatment of this band with it before you submit.

Premature exit before 60

The amendment also changed what happens if a non-government subscriber leaves NPS before superannuation.

So a 45-year-old with Rs 20 lakh who exits early receives at most Rs 4 lakh in cash, and Rs 16 lakh must buy an annuity. A subscriber with Rs 4.5 lakh, below the Rs 5 lakh threshold, can take all of it.

Partial withdrawals and age limits

Partial withdrawals during the accumulation phase sit alongside the exit rules. Under the amended framework recorded in Oquilia's rate configuration (last updated 19 December 2025):

• You can withdraw up to 25% of your own contributions, excluding the employer's share and investment returns.
• You must have been in NPS for at least 3 years.
• Before 60, partial withdrawals are allowed up to 4 times, with a gap of at least 4 years between them.
• After 60, there is no cap on the number, only a minimum 3-year interval between withdrawals.

The maximum age for both entry and exit is now 85, which gives a subscriber who keeps working past 60 up to 25 more years to defer exit.

How NPS compares with other retirement schemes this quarter

Search intent for most retirees is NPS versus the guaranteed small-savings options. Current rates, from Oquilia's rate configuration:

The SCSS and PPF rates are next reviewed on 1 January 2027. You can model the NPS side with Oquilia's NPS calculator and compare an annuity against a self-managed drawdown with the annuity vs SWP calculator.

Tax on Withdrawal

This is where the 2025 amendment creates a trap. PFRDA can change how much you are allowed to withdraw; it cannot change the Income-tax Act, 1961.

The lump sum at exit: Section 10(12A)

Section 10(12A) exempts the payment received on closure of the NPS account, or on opting out of it, only to the extent it does not exceed 60% of the total amount payable. That 60% limit has applied since 1 April 2020, and Oquilia verified the provision against the Income Tax Department's published text on 21 September 2026. No Finance Act amendment aligning it with PFRDA's 80% has been found as of 24 October 2026.

The result is that a non-government subscriber may take up to 80% as a lump sum, while Section 10(12A) exempts the payment only to the extent it does not exceed 60% of the total amount payable. On a Rs 1 crore corpus, that leaves a Rs 20 lakh slice whose tax treatment does not follow from Section 10(12A) at all.

We are not going to tell you that slice is taxable, or that it is exempt, because no official source settles it either way as of 24 October 2026. What you should do is plan as though the two ceilings are different, ask your chartered accountant or the CRA for the treatment applied at the time you exit, and check the Income Tax Department portal for any later amendment.

Partial withdrawals: Section 10(12B)

Partial withdrawals are cleaner. Section 10(12B) exempts withdrawals up to 25% of the subscriber's own contributions, and PFRDA's partial-withdrawal limit is also 25% of own contributions. The tax ceiling and the withdrawal ceiling match, so a subscriber who has contributed Rs 16 lakh of their own money can withdraw up to Rs 4 lakh within both limits.

The annuity: taxed as income each year

The 20% (or more) that buys an annuity is not taxed when it is used for the purchase, but the annuity instalments you receive are added to your income for the year and taxed at your slab rate. Under the new regime for FY 2026-27, the slabs are:

The Section 87A rebate in the new regime is up to Rs 60,000 where total income does not exceed Rs 12 lakh; in the old regime it is up to Rs 12,500 for income up to Rs 5 lakh. A 4% health and education cess applies on tax plus surcharge, and the highest new-regime surcharge is 25%. For a retiree whose annuity plus interest income comes to Rs 9 lakh, the slab tax works out to Rs 30,000 (5% of Rs 4 lakh plus 10% of Rs 1 lakh), which the Rs 60,000 rebate wipes out entirely.

One more point on deductions. The extra Rs 50,000 deduction under Section 80CCD(1B) for NPS contributions is available only in the old regime; it is not available in the new regime. It helps while you are contributing, not at exit.

Worked Drawdown

Take a 60-year-old All Citizen Model subscriber with a Rs 1 crore NPS corpus at normal exit. We compare two exit choices and then run 10 years of withdrawals. The 7% annual return on the invested lump sum is an illustrative assumption, not a forecast, and annuity income is left as quote-dependent because annuity rates vary by provider, age and option.

Step 1: the exit split

Choice B keeps the whole lump sum within the 60% exemption but puts Rs 20 lakh more into an annuity whose instalments are taxed at slab rates every year. Choice A puts Rs 20 lakh more in your hands but leaves that Rs 20 lakh with treatment you need to confirm before filing.

Step 2: ten years of drawdown on the lump sum

Assume the lump sum is invested and earns 7% a year, and the retiree withdraws a fixed amount at the end of each year: Rs 6 lakh a year under Choice A (7.5% of Rs 80 lakh) and Rs 4.5 lakh a year under Choice B (7.5% of Rs 60 lakh).

After 10 years, Choice A has paid out Rs 60 lakh in withdrawals and still holds Rs 74.47 lakh. Choice B has paid out Rs 45 lakh and holds Rs 55.86 lakh. In both cases the balance declines slowly because the 7.5% withdrawal rate is only 0.5 percentage points above the assumed 7% return. A 1-point fall in returns, to 6%, would make the decline noticeably faster, so test your own figures in the retirement drawdown calculator.

Step 3: what the annuity adds

Under Choice A, Rs 20 lakh buys the annuity; under Choice B, Rs 40 lakh does. Whatever annual pension the annuity service provider quotes, it is added to slab income. If the annuity plus the taxable part of your drawdown keeps total income at or below Rs 12 lakh, the new-regime rebate of up to Rs 60,000 can bring slab tax to nil, although the rebate does not cover income taxed at special rates such as long-term capital gains on equity, which is taxed at 12.5% above the Rs 1.25 lakh annual exemption.

Step 4: smaller corpora

The bands change the arithmetic for modest savers:

• Rs 7 lakh non-government corpus: below the Rs 8 lakh threshold, so the full Rs 7 lakh can be withdrawn and no annuity is compulsory. Section 10(12A) exempts only the first Rs 4.2 lakh (60%).
• Rs 10 lakh non-government corpus: in the Rs 8 lakh to Rs 12 lakh band, so the lump sum is capped at Rs 6 lakh, which is exactly 60% and therefore within the Section 10(12A) limit; the other Rs 4 lakh runs through SUR.
• Rs 1.8 lakh NPS-Lite corpus: below the Rs 2 lakh threshold, so it can be withdrawn in full.

The Rs 10 lakh case is the neatest of the three: the Rs 6 lakh lump-sum cap and the 60% exemption coincide. Above Rs 12 lakh, the 80% rule applies and the gap between the two ceilings reappears. Use the annuity vs SWP calculator to compare the annuity leg with a self-managed withdrawal plan, and read the Oquilia glossary on systematic withdrawal plans.

Related reading

For other parts of the December 2025 framework, see our explainers on loans against an NPS account under the lien rule and surrendering an NPS annuity under PFRDA's May 2026 relaxation.

FAQ

Can I now take 80% of my NPS corpus as cash at 60?

Yes, if you are a non-government subscriber under the All Citizen Model or Corporate Sector. Under the amendment published on 16 December 2025, the maximum lump sum at normal exit is 80%, with at least 20% used to buy an annuity. Government-sector subscribers and NPS-Lite remain on 60% lump sum.

Does the 60% tax exemption cover the full 80% lump sum?

Not on the current text of the Income-tax Act. Section 10(12A) exempts the closure payment only to the extent it does not exceed 60% of the total amount payable, so on a Rs 1 crore corpus Rs 60 lakh falls within the exemption and the treatment of the next Rs 20 lakh does not follow from that section. Confirm it with a tax adviser at the time of exit.

What happens if my corpus is under Rs 8 lakh?

A non-government subscriber with a corpus of Rs 8 lakh or less can withdraw all of it, with no compulsory annuity. Between Rs 8 lakh and Rs 12 lakh, the lump sum is capped at Rs 6 lakh and the balance runs through systematic unit redemption. For NPS-Lite, the full-withdrawal threshold is Rs 2 lakh.

Can I exit NPS before 60 without a 5-year wait?

Yes. The 2025 amendment removed the 5-year minimum for premature exit by non-government subscribers. On a premature exit, at most 20% can be taken as a lump sum and at least 80% must buy an annuity, unless the corpus is Rs 5 lakh or less, in which case it can be withdrawn in full.

How many partial withdrawals are allowed now?

Before 60, up to 4 partial withdrawals are allowed, with a gap of at least 4 years between them, after a minimum of 3 years in NPS. After 60, there is no cap on the number, but withdrawals must be at least 3 years apart. Each is limited to 25% of your own contributions, which Section 10(12B) exempts from tax.

Up to what age can I stay invested in NPS?

The maximum age for both entry and exit is now 85, so a subscriber can defer exit by up to 25 years beyond 60. Deferring keeps the corpus invested, but the 80% lump-sum and 20% annuity rules still apply when you finally exit.

This article explains regulations published by PFRDA on 16 December 2025 and the Income-tax Act provisions current as of 24 October 2026. It is general information, not personalised tax or investment advice. Confirm the options on your own PRAN with your CRA before submitting an exit request.