NPS-Lite and Swavalamban exit rules 2026: the Rs 2 lakh full-withdrawal limit, 60/40 split and partial withdrawals

NPS-Lite and Swavalamban were built for subscribers with small, irregular savings, and their exit rules reflect that. Under the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, as amended, and the FAQ on exits and withdrawals that PFRDA updated in March 2026, the single number that decides most outcomes is Rs 2 lakh of accumulated pension wealth (APW). At or below that figure, a subscriber can usually take the whole pot as cash. Above it, a fixed share must go into an annuity.

This guide sets out the normal exit, premature exit, death and disability rules, the four partial withdrawals allowed before age 60, how each payout is taxed, and two worked drawdown examples. Every rule below is drawn from the PFRDA FAQ on NPS-Lite and Swavalamban exits, and the tax treatment from Sections 10(12A), 10(12B) and 80CCD of the Income-tax Act, 1961. If you want to model your own figures as you read, the NPS calculator and the retirement drawdown calculator will help.

The Scheme Explained

NPS-Lite is the low-cost variant of the National Pension System, run through aggregators rather than the full Point of Presence network. Swavalamban was the version of NPS-Lite under which the Government paid a co-contribution into eligible accounts. Both now sit under the same 2015 exit regulations, but with their own thresholds: for NPS-Lite the full-withdrawal limit is Rs 2 lakh, compared with Rs 8 lakh for the main NPS accounts under the PFRDA amendment announced on 19 December 2025.

A "normal exit" happens in one of two situations: the subscriber reaches age 60, or the subscriber suffers physical incapacitation or bodily disability. Everything before 60 that is not disability or death is a "premature exit".

Normal exit at age 60

So a subscriber with APW of Rs 2 lakh or less can choose between withdrawing 100% as a lump sum or following the standard split of at most 60% lump sum and at least 40% annuity. Above Rs 2 lakh, the 60/40 split is compulsory. In every case PFRDA allows the entire APW to be used to buy an annuity if the subscriber prefers a lifelong income.

The Swavalamban Rs 1,000 proviso

Swavalamban carries one extra condition. The minimum 40% annuity must produce a pension of at least Rs 1,000 a month. If 40% of the APW would buy a smaller pension, the regulations require that the entire APW, or as much of it as needed, be annuitised to reach Rs 1,000 a month, and any balance is paid out as a lump sum. PFRDA's FAQ is explicit on one point that subscribers often misread: there is no implicit or explicit guarantee of Rs 1,000 a month. If the whole APW cannot buy that pension, the subscriber simply receives whatever annuity the full corpus buys.

Premature exit before 60

Leaving early is far more restrictive: above Rs 2 lakh, only 20% can come out as cash and 80% must be annuitised. For Swavalamban accounts that received the Government co-contribution, the 100% withdrawal at or below Rs 2 lakh is available only if the subscriber is not eligible for auto-migration to the Atal Pension Yojana, and the co-contribution together with the returns earned on it is deducted from the payout.

Death and disability

On the death of a subscriber, the nominee or legal heir may take the entire APW as a lump sum, or choose to buy an annuity. If no nomination exists, the claim is settled on the basis of a legal heir certificate or succession certificate, which in practice adds weeks or months.

A disability exit is treated as a normal exit (the 60/40 and Rs 2 lakh rules above) only if the subscriber produces a certificate from a Government surgeon or doctor showing disability above 75%. Without that certificate, the claim is processed as a premature exit, with the 20/80 split. The difference on APW of Rs 3 lakh is Rs 1.2 lakh of cash (60% versus 20%).

Partial withdrawals before 60

Partial withdrawals are allowed only for specified purposes: higher education or marriage of children; a one-time purchase or construction of a house (not allowed if the subscriber already owns a non-ancestral house); medical treatment of the subscriber, spouse, children or dependent parents; disability expenses; and settling a loan taken from a regulated lender against a lien on the pension account. The 25% cap applies to the subscriber's own contributions only, so a Swavalamban co-contribution and all investment returns are outside it.

Nominations and where to apply

Nomination is mandatory, and up to 3 nominees can be named. A nomination made before marriage becomes invalid on marriage and must be filed again, a step that is easy to overlook. All exit and withdrawal applications are submitted through the associated Point of Presence, which for NPS-Lite means the aggregator through which the account was opened.

Tax on Withdrawal

NPS payouts are governed by three provisions of the Income-tax Act, 1961, which you can read on the Income Tax Department's portal.

Three points follow for NPS-Lite subscribers.

First, the 100% withdrawal is not fully tax-free. Section 10(12A) exempts up to 60% of the total amount payable on closure. If a subscriber with APW of Rs 1.8 lakh takes the full Rs 1.8 lakh, Rs 1.08 lakh (60%) is exempt and Rs 72,000 is added to income. For most NPS-Lite subscribers, whose total income is modest, that Rs 72,000 will carry no tax at all: under the new regime for FY 2025-26, income up to Rs 4 lakh is taxed at 0%, and the Section 87A rebate of up to Rs 60,000 removes the tax for total income up to Rs 12 lakh.

Second, the annuity is taxed every year. The pension is income in the year it is received and is taxed at the applicable slab rate. At Rs 12,000 a year (the Swavalamban floor of Rs 1,000 a month), it would be well inside the Rs 4 lakh nil-rate slab of the new regime.

Third, partial withdrawals within the 25% cap are exempt under Section 10(12B), so drawing for a child's education or a medical bill does not create a tax bill.

The new-regime slabs for FY 2025-26, as recorded in Oquilia's rate configuration, are:

Add 4% health and education cess on any tax payable. One related point on contributions rather than withdrawals: the additional Rs 50,000 deduction under Section 80CCD(1B) is available only in the old regime, not the new one.

Worked Drawdown

The two examples below apply the PFRDA rules to hypothetical subscribers. The annuity rate of 6% a year is an assumption for illustration only, not a quote from any annuity service provider; actual rates vary by provider, age and annuity option, so check live quotes before deciding. The annuity vs SWP calculator lets you test other rates.

Example 1: NPS-Lite subscriber, APW Rs 1.8 lakh at age 60

Because Rs 1.8 lakh is below the Rs 2 lakh threshold, the subscriber can take everything as cash.

If the subscriber chooses option A and parks Rs 1.8 lakh in a savings product, then draws Rs 1,500 a month (Rs 18,000 a year), ignoring returns the money lasts exactly 10 years, to age 70. Any interest earned extends that period; a systematic withdrawal plan calculator shows the effect of different rates. Option C instead pays Rs 10,800 a year for life on the assumed rate, which is Rs 900 a month and still below the Rs 1,000 figure that Swavalamban subscribers sometimes expect.

Example 2: Swavalamban subscriber, APW Rs 3.5 lakh at age 60

Above Rs 2 lakh, the 60/40 split is compulsory, and the Rs 1,000 a month proviso is tested.

Because 40% of APW buys only Rs 700 a month at the assumed rate, the regulations push more of the corpus into the annuity until it reaches Rs 1,000 a month. That uses Rs 2 lakh, leaving Rs 1.5 lakh as cash rather than the Rs 2.1 lakh (60%) a normal NPS-Lite subscriber would receive. If annuity rates were lower, more of the corpus would be annuitised; if the full Rs 3.5 lakh could not buy Rs 1,000 a month, the subscriber would get whatever pension Rs 3.5 lakh buys, with no top-up.

Example 3: Premature exit at 50 with APW Rs 3 lakh

The same Rs 3 lakh produces Rs 1.2 lakh less cash if the subscriber leaves before 60 without a qualifying disability certificate. A subscriber who needs money for a specific purpose, such as a medical bill, may do better with a partial withdrawal of up to 25% of own contributions, which leaves the account open and preserves the 60% lump sum option at 60. The retirement corpus calculator can help estimate how much the account may grow by then.

FAQ

What is the full-withdrawal limit for NPS-Lite and Swavalamban?

Rs 2 lakh of accumulated pension wealth. At or below that figure, a subscriber exiting at 60 can take 100% as a lump sum, and a premature exiter can also take 100%, subject to the Atal Pension Yojana condition for Swavalamban accounts.

Is Rs 1,000 a month guaranteed under Swavalamban?

No. PFRDA's March 2026 FAQ states there is no implicit or explicit guarantee. The rule only requires that more of the corpus, up to all of it, be annuitised to try to reach Rs 1,000 a month.

How many partial withdrawals can I make before 60?

Up to 4, after at least 3 years of subscription, with a minimum gap of 4 years between them. Each is capped at 25% of your own contributions, excluding returns.

Is the 100% lump sum tax-free?

Only up to 60% of APW is exempt under Section 10(12A). The other 40% is added to income, though on small NPS-Lite balances it often falls inside the Rs 4 lakh nil-rate slab or the Rs 60,000 Section 87A rebate under the new regime.

What happens to the Government co-contribution if I exit early?

If you received the Swavalamban co-contribution and exit before 60 with APW of Rs 2 lakh or less, the co-contribution and its returns are deducted, and the full withdrawal is allowed only if you are not eligible for auto-migration to the Atal Pension Yojana.

Does my nomination stay valid after marriage?

No. A nomination becomes invalid on marriage and must be filed again. You can name up to 3 nominees, and nomination is mandatory.

Where do I submit an exit application?

Through the Point of Presence associated with your account, which for NPS-Lite is the aggregator through which you enrolled. A disability claim needs a Government surgeon's certificate showing disability above 75% to be treated as a normal exit.

This article explains PFRDA rules and tax provisions as published; it is not individual advice. Annuity figures use an assumed 6% rate for illustration only.