Leaving a government or PSU job on NPS? Why your exit or sector shift now needs the source nodal office's sign-off
PFRDA's 10 Oct 2025 circular makes source nodal office sign-off mandatory for every NPS exit or sector shift by government and PSU staff, even after retirement.
Key points
- PFRDA's circular of 10 October 2025 makes source nodal office authorisation mandatory for every NPS exit or inter-sector shift by government-sector subscribers.
- It removes the 22 December 2022 exemption for post-retirement shifts and applies irrespective of the subscriber's date of retirement or superannuation.
- PSU and PSB staff on the NPS Corporate model now need employer consent and proof of cessation before a PoP will process any exit or shift.
Photo: Dietmar Rabich / Wikimedia Commons, CC BY-SA 4.0 (cropped). Representational image.
If you are a Central or State Government employee, or work for a public sector undertaking (PSU) or public sector bank (PSB) on the National Pension System, the paperwork for leaving NPS changed on 10 October 2025. Under PFRDA Circular No. PFRDA/2025/15/SUP-CRA/1, your exit request or inter-sector shift (ISS) now needs the authorisation of your source nodal office in every case where your relationship with the government employer ends. That includes requests made after you have already retired, which until that date did not need the nodal office's sign-off.
This piece explains what the circular says, what it replaced, how it sits alongside the 60:40 government-sector exit split, how the money is taxed when it finally comes out, and what a realistic drawdown on an Rs 80 lakh corpus looks like once the approval is through.
The Scheme Explained
What the 10 October 2025 circular actually says
The circular is six paragraphs long, signed by a PFRDA Chief General Manager, and addressed to all government nodal offices, Points of Presence (PoPs), Central Recordkeeping Agencies (CRAs) and NPS subscribers. Its operative points, taken directly from the PFRDA circular, are:
- Paragraph 2: source nodal office authorisation "shall be mandatory in all cases of cessation of relationship between the subscriber and the Government/Government employer, including inter-sector shifting".
- Paragraph 3: the rule applies uniformly to Central Governments, State Governments and government-owned entities registered as corporates, "irrespective of the subscriber's date of retirement or superannuation".
- Paragraph 4: the provision in Circular PFRDA/2022/39/SUP-CRA/14 of 22 December 2022 that exempted post-superannuation requests "stands modified".
- Paragraph 5: PoPs servicing employees of PSUs, PSBs or any government-owned or controlled entity under the NPS Corporate Sector model must process any exit or ISS "only with due consent from the concerned employer", backed by documents confirming cessation of employment.
- Paragraph 6: the circular is effective immediately, that is, from 10 October 2025.
What changed from the 2022 position
The 22 December 2022 circular had carved out a simple exception: once a government-sector or PSU/PSB corporate subscriber had retired or superannuated, the source nodal office did not need to authorise an ISS request. The 2025 circular removes that carve-out. The table below sets the two side by side.
| Situation | Under PFRDA/2022/39 (22 Dec 2022) | Under PFRDA/2025/15 (10 Oct 2025) |
|---|---|---|
| ISS request while still in government service | Source nodal office authorisation needed | Source nodal office authorisation needed |
| ISS request after retirement or superannuation | Not needed | Mandatory |
| Exit request on cessation of employment | Processed through the nodal office | Mandatory nodal office authorisation |
| PSU/PSB employee under NPS Corporate model, exit or ISS via PoP | Exemption applied post-superannuation | Only with employer consent and documents confirming cessation |
| Segments covered | Government sector and PSU/PSB corporate | Central Govt, State Govt and government-owned corporates, uniformly |
Source: PFRDA circulars dated 22 December 2022 and 10 October 2025. The circular states its purpose in paragraph 2 as ensuring "robust control and oversight" in processing exit and sector-shifting requests.
Who is a "source nodal office"
For a government subscriber, the nodal office is the office through which contributions to your Permanent Retirement Account Number (PRAN) are uploaded; the "source" office is the one your PRAN sits under when the relationship with the employer ends, as paragraph 2 of the circular frames it. For a PSU or PSB employee on the corporate model, paragraph 5 places the duty on the PoP to obtain the employer's consent. See the NPS glossary entry for how PRAN, PoP and CRA fit together.
Why the sector label matters for your money
The sector your PRAN sits in decides your exit split. Under the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, notified with a press release on 19 December 2025, the figures are:
| Exit rule at normal superannuation | Government sector | Non-government (All Citizen, Corporate) | NPS-Lite |
|---|---|---|---|
| Maximum lump sum | 60% | 80% | 60% |
| Minimum annuity purchase | 40% | 20% | 40% |
| Full corpus as lump sum if corpus is at or below | Rs 8 lakh | Rs 8 lakh | Rs 2 lakh |
| Middle band (lump sum capped at Rs 6 lakh) | Above Rs 8 lakh up to Rs 12 lakh | Above Rs 8 lakh up to Rs 12 lakh | Not applicable |
| Tax-exempt share of lump sum, section 10(12A) | 60% | 60% | 60% |
Source: Oquilia rate configuration, from PFRDA's 2025 amendment regulations and the 19 December 2025 press release.
The circular itself says nothing about which split applies after an ISS. Paragraph 2 only ensures that any shift out of the government sector, whether at 45 or after superannuation at 60, now passes through the source nodal office first. If you are planning an ISS after retirement, confirm in writing with your CRA which exit rules will apply to the shifted corpus before you file.
What to keep ready before you file
Paragraph 5 requires "appropriate documentation/communication confirming such cessation of employment". In practice, that points to at least the following, and your nodal office may ask for more:
- Your PRAN and the exit or ISS form generated on the CRA system.
- The order confirming retirement, superannuation, resignation or VRS, carrying the effective date.
- For PSU/PSB staff on the corporate model, a letter or e-mail from the employer consenting to the exit or ISS.
- Updated bank details and KYC, because a mismatch is one of the common reasons a payout fails; Oquilia's earlier report on failed NPS exit payouts being reinvested into the PRAN after 30 days explains what happens then.
Tax on Withdrawal
The circular changes process, not tax. Once your nodal office authorises the exit, the payout is taxed exactly as before. There are three distinct streams.
1. Lump sum at exit: exempt up to 60%
Section 10(12A) of the Income-tax Act, 1961 exempts the payment from the NPS Trust on closure or opting out "to the extent it does not exceed sixty per cent of the total amount payable", a 60% limit in force since 1 April 2020. For a government-sector subscriber, the maximum lump sum is also 60%, so the two ceilings line up: the entire lump sum a government subscriber is allowed to take falls within the exemption.
That neat alignment does not hold for the non-government sector, where PFRDA allows up to 80% as lump sum but section 10(12A) still exempts only 60%. Oquilia has not found a Finance Act change aligning the two, so anyone who has shifted to a non-government sector and is considering more than 60% should confirm the tax treatment of the extra slice with a chartered accountant before withdrawing.
2. Annuity income: taxable at your slab
The pension paid by the annuity bought with the minimum 40% is taxable every year at your slab rate. Under the new regime for FY 2026-27, the slabs are:
| Taxable income band | New-regime rate |
|---|---|
| Up to Rs 4 lakh | Nil |
| Rs 4 lakh to Rs 8 lakh | 5% |
| Rs 8 lakh to Rs 12 lakh | 10% |
| Rs 12 lakh to Rs 16 lakh | 15% |
| Rs 16 lakh to Rs 20 lakh | 20% |
| Rs 20 lakh to Rs 24 lakh | 25% |
| Above Rs 24 lakh | 30% |
Under section 87A, a resident individual in the new regime with taxable income up to Rs 12 lakh gets a rebate of up to Rs 60,000, which wipes out the tax on income at that level. Health and education cess of 4% applies on any tax that remains. In the old regime, the 87A rebate is up to Rs 12,500 for taxable income up to Rs 5 lakh.
3. Where you park the lump sum
The lump sum itself is tax-free on receipt, but what it earns afterwards is taxed under the rules for the product you choose:
- Senior Citizens' Savings Scheme (SCSS): interest at 8.2% for October to December 2026 (Q3 FY 2026-27, next review 1 January 2027), taxable at slab.
- Equity-oriented mutual funds via SWP: long-term capital gains taxed at 12.5% above Rs 1.25 lakh a year, under the Budget 2024 rates effective 23 July 2024.
- Debt mutual funds via SWP: gains on units bought after 1 April 2023 are taxed at your slab rate regardless of holding period.
One point that is often missed: 80CCD(1B), the extra Rs 50,000 deduction for your own NPS contributions, is available only in the old regime. It does not apply in the new regime, and it does not affect how exit proceeds are taxed.
Worked Drawdown
The example below assumes a Central Government employee who superannuates at 60 in November 2026 with an NPS corpus of Rs 80 lakh, files the exit through the source nodal office as the 10 October 2025 circular requires, and receives the payout once it is authorised. All figures are illustrative; the annuity rate and fund return are assumptions for the arithmetic, not quotes.
Step 1: split the corpus
Because Rs 80 lakh is above the Rs 12 lakh upper limit of the middle band, the standard government-sector 60:40 split applies.
- Lump sum: 60% of Rs 80,00,000 = Rs 48,00,000, fully exempt under section 10(12A).
- Annuity purchase: 40% of Rs 80,00,000 = Rs 32,00,000.
Step 2: deploy the lump sum
- Rs 15,00,000 into SCSS at 8.2% = Rs 1,23,000 a year in interest.
- Rs 33,00,000 into a debt mutual fund with a systematic withdrawal plan of Rs 2,40,000 a year, assuming a 7% annual return for illustration.
Step 3: the annuity
Assuming an annuity rate of 6.5% a year purely for illustration, Rs 32,00,000 buys Rs 2,08,000 a year. Actual rates vary by insurer, age and the annuity option chosen; compare quotes before you buy. The annuity vs SWP calculator lets you test your own figures.
Step 4: the first seven years of the SWP bucket
| Year | Opening balance (Rs) | Growth at 7% (Rs) | Withdrawal (Rs) | Closing balance (Rs) |
|---|---|---|---|---|
| 1 | 33,00,000 | 2,31,000 | 2,40,000 | 32,91,000 |
| 2 | 32,91,000 | 2,30,370 | 2,40,000 | 32,81,370 |
| 3 | 32,81,370 | 2,29,696 | 2,40,000 | 32,71,066 |
| 4 | 32,71,066 | 2,28,975 | 2,40,000 | 32,60,041 |
| 5 | 32,60,041 | 2,28,203 | 2,40,000 | 32,48,243 |
| 6 | 32,48,243 | 2,27,377 | 2,40,000 | 32,35,620 |
| 7 | 32,35,620 | 2,26,493 | 2,40,000 | 32,22,114 |
Withdrawal is assumed at the end of each year. The closing balance falls by about Rs 10,000 to Rs 13,000 a year, so at a steady 7% the bucket lasts well beyond 20 years at this withdrawal rate. A lower return, or higher withdrawals to keep pace with inflation, will shorten that; the retirement drawdown calculator models both.
Step 5: annual income and tax
| Stream | Annual amount (Rs) | Tax treatment |
|---|---|---|
| Annuity on Rs 32 lakh (assumed 6.5%) | 2,08,000 | Slab rate |
| SCSS interest on Rs 15 lakh at 8.2% | 1,23,000 | Slab rate |
| SWP from Rs 33 lakh debt fund | 2,40,000 | Only the gain portion is taxed, at slab |
| Total cash flow | 5,71,000 |
Even treating the full Rs 5,71,000 as taxable, which overstates it because most of the SWP is a return of capital, total income is well below Rs 12 lakh. Under the new regime, the section 87A rebate of up to Rs 60,000 brings the tax to nil. That works out to about Rs 47,583 a month. Use the SCSS calculator and the NPS calculator to rerun the numbers on your own corpus.
Where the circular bites in this example
None of the arithmetic above starts until the source nodal office authorises the exit. Since 10 October 2025, a retiree in this position cannot route an ISS around the nodal office by filing after the retirement date, which was possible under the 22 December 2022 rule. Build a buffer of two to three months' expenses into your plan so that any delay in authorisation does not force you to borrow or break the SCSS deposit early.
FAQ
Does the 10 October 2025 circular apply if I retired before that date?
Yes. Paragraph 3 says the requirement applies "irrespective of the subscriber's date of retirement or superannuation". If your exit or ISS request was still pending or filed after 10 October 2025, it needs source nodal office authorisation.
I work at a public sector bank under the NPS Corporate model. Does this apply to me?
Yes. Paragraph 5 of Circular PFRDA/2025/15/SUP-CRA/1 tells PoPs serving employees of PSUs, PSBs and any government-owned or controlled entity under the Corporate Sector model to process any exit or ISS only with the employer's consent and documents confirming cessation of employment.
Can I still shift my PRAN to the All Citizen model after retirement?
The circular does not stop an ISS; it requires the source nodal office to authorise it. Under the 22 December 2022 circular that authorisation was not needed after superannuation; under the 10 October 2025 circular it is mandatory in all cases.
How much of my NPS corpus can I take as lump sum as a government employee?
Up to 60%, with at least 40% used for an annuity, under PFRDA's 2025 amendment regulations. If your total corpus is Rs 8 lakh or less, you may take all of it as lump sum. Between Rs 8 lakh and Rs 12 lakh, a Rs 6 lakh lump-sum cap applies.
Is the 60% lump sum tax-free?
Yes. Section 10(12A) of the Income-tax Act, 1961 exempts the lump sum up to 60% of the total amount payable on closure or exit. For a government subscriber, whose lump sum is capped at 60%, the whole lump sum falls within the exemption.
Is the annuity pension taxable?
Yes. The annuity income is taxable each year at your slab rate. In the new regime, if your total taxable income stays within Rs 12 lakh, the section 87A rebate of up to Rs 60,000 can reduce the tax to nil.
Can I claim 80CCD(1B) on NPS contributions in the new regime?
No. The additional Rs 50,000 deduction under section 80CCD(1B) is available only under the old regime.