You are in your 40s, you have been putting money into NPS for a while, and suddenly retirement does not feel that far away. What can you actually take out? And what changed in December 2025? A lot.
The PFRDA latest amendments let non-government subscribers withdraw up to 80% as a lump sum (up from 60%), reduced the mandatory annuity to 20% (down from 40%), extended the deferment age to 85, and removed the minimum lock-in for premature exit entirely. These changes affect over 2.17 crore NPS subscribers as of FY26. (The 10.4 crore number you sometimes see includes APY accounts, not NPS alone.)
Here is what that means at each stage.
Early Career (Under 45)
If you joined NPS recently, here is the good news: the minimum lock-in for premature exit has been removed (previously 5 years for the All Citizen Model). You can also make partial withdrawals — up to 25% of your own contributions (not the employer part) for things like higher education, marriage, or buying a house. One catch: that 25% is for your first withdrawal only. For subsequent ones, it is 25% of the incremental contributions you have made since the last withdrawal.
Example: if you have put in Rs 2 lakh of your own money on your first withdrawal, you can take out Rs 50,000.
Tier 2 accounts, meanwhile, have no lock-in and no withdrawal restrictions — think of them as a savings account attached to your pension account.
Pre-Retirement (45 to 60)
This is where the rules diverge depending on who you work for:
- Government employees must put 40% of the corpus into an annuity.
- Non-government subscribers (including corporate sector) can keep it to just 20%, thanks to the December 2025 change.
The rest — 60% or 80% — comes as a lump sum, with limits. If your corpus is Rs 8 lakh or less, you can take it all. Between Rs 8 to 12 lakh, you get a systematic withdrawal option. And you can defer the whole thing until age 85 if you do not need the money right now.
At Exit (60+)
Normal exit rules:
- Corpus up to Rs 8 lakh: Take 100% as lump sum.
- Corpus Rs 8 to 12 lakh: Withdraw up to Rs 6 lakh upfront. The balance goes into Systematic Unit Redemption (SUR) for at least 6 years, or you can buy an annuity with it. Alternatively, go with the 80/20 split.
- Corpus above Rs 12 lakh: 80% lump sum + 20% annuity (non-government) OR 60% lump sum + 40% annuity (government).
Premature Exit (Before 60)
- Corpus up to Rs 5 lakh: 100% lump sum allowed.
- Corpus above Rs 5 lakh: minimum 80% annuity.
- Partial withdrawals (up to 4 times before 60, at 4-year intervals) can bridge an emergency.
Death Claims
- Non-government: The nominee gets to choose — 100% lump sum or annuity.
- Government: Corpus up to Rs 8 lakh: 100% lump sum. Above Rs 8 lakh: 20% lump sum + 80% annuity.
Post-60 Joiners
Joined NPS after 60? The minimum stay requirement has been removed. You can withdraw the entire corpus as a lump sum. No partial withdrawal restrictions either, which makes NPS genuinely useful for late starters.
Tier 2 as a Savings Account
Tier 2 has no lock-in and complete liquidity. The trade-off: no tax benefits for most people. (Central government employees can claim 80C deduction on Tier 2 contributions, up to Rs 1.5 lakh.) Everyone else gets zero tax benefit but also zero restrictions. Useful for short-term goals — house down payment in two years, that kind of thing — while your Tier 1 stays locked for retirement.
Critical Tax Warning — Read This
PFRDA now lets you withdraw up to 80% as a lump sum. But the Income Tax Act (Section 10(12A)) still only exempts 60% of your total corpus from tax at normal exit. The law has not caught up with the new rules yet.
What this means in practice:
- Old rule (60% lump sum): the whole withdrawal was tax-free. Simple.
- New rule (80% lump sum): you can take 80%, but only 60% of your corpus is tax-exempt. The extra 20% is taxed at your normal slab rate.
- Buying the annuity itself is tax-exempt. The annuity income you receive later? That is taxable.
Example: Rs 15 lakh corpus, non-government subscriber. You take Rs 12 lakh as lump sum (80%) and put Rs 3 lakh into an annuity (20%). Of that Rs 12 lakh, only Rs 9 lakh (60% of corpus) is tax-free. The remaining Rs 3 lakh is taxable at your slab rate.
Quick Calculator Logic
- Corpus up to Rs 8 lakh: 100% lump sum — only 60% of the corpus is tax-free; anything above 60% of the corpus is taxable at your slab rate.
- Corpus Rs 8 to 12 lakh: SUR option (Rs 6 lakh upfront + balance over minimum 6 years) or 80/20 split.
- Corpus above Rs 12 lakh: 80/20 (non-govt) or 60/40 (govt). Any lump sum beyond 60% of corpus is taxable.
Risks Worth Knowing About
- NPS returns are market-linked. Your corpus goes up and down.
- Annuity rates at withdrawal time are not guaranteed — currently around 6 to 7%.
- Partial withdrawals are capped at 25% of your own contributions, not the total corpus. Subsequent withdrawals only on incremental contributions.
- Premature exit before 60 triggers an 80% annuity requirement (unless corpus is Rs 5 lakh or less).
What to Actually Do
- Check your current NPS balance and your Tier 1/Tier 2 split.
- Use the SUR calculator on the NPS Trust site to run scenarios.
- If you think you might take more than 60% as lump sum, set aside money for the tax bill on the excess.
- If you are under 45, consider using Tier 2 for short-term goals (check whether you are a central govt employee first — that 80C benefit changes the math).
- Update your nomination if your family situation has changed.
Bottom Line
The December 2025 NPS reforms give subscribers more flexibility than ever — especially the higher lump-sum ceiling and the option to defer to 85. But that flexibility comes with a tax trap that most articles do not mention: the IT Act still treats your withdrawal as if you are only taking 60%. If you are planning on taking the full 80%, budget for the extra tax.
Honestly, nobody can tell you the right annuity-versus-lump-sum split over a generic article. It depends on how much other income you will have in retirement. But knowing the rules is the first step.
Frequently Asked Questions
How much can I withdraw from NPS at age 60 in 2026?
For non-government subscribers: corpus up to 8 lakh = 100% lump sum; 8-12 lakh = up to 6 lakh lump sum + balance via SUR (min 6 years) or annuity; above 12 lakh = up to 80% lump sum + minimum 20% annuity. Government subscribers: max 60% lump sum, minimum 40% annuity (unchanged).
Is NPS lump sum withdrawal tax free in 2026?
Only 60% of the total corpus is tax-free under Section 10(12A). If you withdraw 80% as lump sum (new PFRDA rule), the extra 20% (60-80% band) is taxable at your slab rate until the Income Tax Act is amended to match.
What is the new NPS withdrawal rule effective December 2025?
PFRDA amended the Exits and Withdrawals Regulations on 16 Dec 2025: non-government subscribers can now withdraw up to 80% lump sum (was 60%) with minimum 20% annuity (was 40%); deferment age extended to 85 (was 75); small corpus threshold raised to 8 lakh for 100% withdrawal (was 5 lakh); SLW/SUR phased withdrawal options introduced; 5-year lock-in removed for premature exit.
Can I withdraw 100% of NPS without buying an annuity?
Yes, if your total corpus is 8 lakh or less at normal exit (age 60/superannuation), or 5 lakh or less at premature exit. Government subscribers: 8 lakh threshold at superannuation. Death claims: non-government nominees get 100% lump sum option; government nominees get 100% up to 8 lakh, above that 20% lump sum + 80% annuity.
What is SUR (Systematic Unit Redemption) in NPS?
SUR lets you withdraw your eligible lump sum in phased instalments (monthly/quarterly/half-yearly/yearly) over a minimum 6-year period while the remaining corpus stays invested. PFRDA term is SUR (not SWP). Minimum duration: 6 years.
How many partial withdrawals are allowed from NPS Tier 1?
Maximum 4 partial withdrawals before age 60 (increased from 3), with minimum 4-year gap between withdrawals. Each withdrawal: up to 25% of own contributions. First withdrawal: 25% of total own contributions to date. Subsequent: 25% of incremental own contributions since last withdrawal. Post-60: unlimited withdrawals with 3-year gap.
What happens to NPS on death of subscriber?
Non-government: nominee/legal heir can choose 100% lump sum OR annuity. Government: corpus up to 8 lakh = 100% lump sum; corpus above 8 lakh = 20% lump sum + 80% annuity. Death claims are fully tax-free for the nominee under Section 10(12A).
Can government employees withdraw 80% lump sum from NPS?
No. Government subscribers (Central/State/CAB) continue under the 60% lump sum / 40% annuity rule at normal exit. The 80/20 flexibility applies only to non-government (All Citizen Model and Corporate Sector) subscribers.
