Understand NPS withdrawal rules at retirement. Learn about the 60-40 split, annuity options, tax implications, and how to maximize your retirement income from NPS.
You've contributed to NPS for years. Now you're approaching 60, and it's time to understand the exit rules. How much can you withdraw? What happens to the rest?
NPS exit rules are specific—and understanding them is crucial to maximize your retirement income.
NPS Exit Rules at Age 60
The 60-40 Split
| Component |
Percentage |
Treatment |
| Lumpsum withdrawal |
Up to 60% |
Tax-free |
| Annuity purchase |
Minimum 40% |
Taxable as pension |
Key point: You MUST buy an annuity with at least 40% of your corpus. The remaining 60% is your choice.
Calculate your NPS corpus: Use our NPS Calculator to see your expected retirement amount.
What You Can Do with the 60%
| Option |
Description |
| Full lumpsum |
Withdraw all 60% at once (tax-free) |
| Phased withdrawal |
Withdraw in installments until age 75 |
| Leave in NPS |
Continue investing (now allowed till 75) |
| Mix |
Partial lumpsum + phased withdrawal |
Small Corpus Exception
| Corpus Size |
Special Rule |
| ≤ ₹5 lakh |
Can withdraw 100% as lumpsum |
| > ₹5 lakh |
Must follow 60-40 rule |
If corpus is small, you're not forced to buy an annuity.
Understanding Annuity
What is Annuity?
An annuity is a financial product where you give a lump sum to an insurance company, and they pay you a fixed monthly pension for life (or a specified period).
| Feature |
Details |
| Provider |
Life insurance companies |
| Payment |
Monthly/quarterly/annually |
| Duration |
Lifetime or fixed period |
| Rate |
5-7% typically |
Annuity Options Available
| Option |
How It Works |
Best For |
| Life annuity |
Pension till death |
Single person |
| Life annuity with return of corpus |
Pension + corpus to nominee |
Married with dependents |
| Joint life annuity |
Pension to you, then spouse |
Married couples |
| Annuity certain |
Pension for fixed years (5/10/15/20) |
Those with other income |
| Annuity with annual increase |
Pension increases 3% yearly |
Inflation protection |
Annuity Rate Comparison (Indicative)
| Annuity Type |
Rate (Age 60) |
Monthly from ₹40 L |
| Life annuity only |
6.5-7% |
₹21,667-23,333 |
| Life + return of corpus |
5.5-6% |
₹18,333-20,000 |
| Joint life |
5-5.5% |
₹16,667-18,333 |
| With 3% increase |
4.5-5% |
₹15,000-16,667 (year 1) |
Lower rate = more features (spouse coverage, return of capital, inflation adjustment).
Tax Treatment
Lumpsum (60%) - Tax-Free
| Component |
Tax Status |
| Employer contribution |
Tax-free |
| Employee contribution |
Tax-free |
| Returns on both |
Tax-free |
Entire 60% lumpsum is tax-free at withdrawal.
Annuity (40%) - Taxable
| Component |
Tax Treatment |
| Monthly pension |
Added to income |
| Tax rate |
Your slab rate |
| TDS |
Applicable on pension |
Annuity income is fully taxable at your applicable slab rate.
Tax Calculation Example
NPS corpus: ₹1 Cr
| Component |
Amount |
Tax |
| Lumpsum (60%) |
₹60 L |
₹0 |
| Annuity (40%) |
₹40 L |
- |
| Annual pension (6%) |
₹2.4 L |
Slab rate |
| Tax (if 20% bracket) |
- |
₹48,000/year |
Step-by-Step Exit Process
6 Months Before Retirement
| Action |
Timeline |
| Review corpus value |
6 months before |
| Research annuity providers |
6 months before |
| Compare annuity rates |
3-6 months before |
| Decide on 60-40 split vs phased |
3 months before |
At Retirement
| Step |
Action |
| 1 |
Log in to CRA (KFintech/Protean) |
| 2 |
Submit exit/withdrawal request |
| 3 |
Choose lumpsum percentage (up to 60%) |
| 4 |
Select annuity provider |
| 5 |
Choose annuity type |
| 6 |
Submit nominee details |
| 7 |
Provide bank account for lumpsum |
| 8 |
Complete verification |
Documents Required
| Document |
Purpose |
| PRAN card |
Account identification |
| Aadhaar |
Identity verification |
| PAN |
Tax purposes |
| Bank account proof |
Lumpsum credit |
| Cancelled cheque |
Bank verification |
| Passport photo |
Records |
Annuity Provider Selection
Empaneled Annuity Providers
| Provider |
Rating |
Service Quality |
| LIC |
AAA |
Highest claim settlement |
| SBI Life |
AAA |
Good service |
| HDFC Life |
AAA |
Digital-friendly |
| ICICI Prudential |
AAA |
Wide network |
| Bajaj Allianz |
AA+ |
Competitive rates |
| Tata AIA |
AA+ |
Good service |
How to Choose
| Factor |
What to Check |
| Annuity rate |
Higher is better |
| Claim settlement ratio |
Higher is better (95%+) |
| Company rating |
AAA preferred |
| Service quality |
Reviews, accessibility |
| Options offered |
Flexibility |
Rate Comparison Example (₹40 L, Age 60)
| Provider |
Life Annuity |
With Return |
Joint Life |
| LIC |
₹23,000/month |
₹19,500/month |
₹18,000/month |
| SBI Life |
₹23,500/month |
₹19,800/month |
₹18,200/month |
| HDFC Life |
₹22,800/month |
₹19,200/month |
₹17,800/month |
Rates are indicative. Get actual quotes from providers.
Strategies for NPS Exit
Strategy 1: Maximize Tax-Free Lumpsum
| Action |
Result |
| Take full 60% lumpsum |
₹60 L tax-free |
| Buy minimum 40% annuity |
Meets requirement |
| Invest lumpsum in SWP |
Create own "pension" |
Why this works: SWP from equity/balanced funds may give better returns than annuity.
Strategy 2: Higher Annuity for Security
| Action |
Result |
| Take 40% lumpsum |
Keep emergency buffer |
| Buy 60% annuity |
Higher guaranteed pension |
Why this works: More guaranteed income, less market risk.
Strategy 3: Phased Withdrawal
| Year |
Withdrawal from 60% |
Remaining in NPS |
| 60 |
10% (₹6 L) |
50% continues |
| 61-65 |
10%/year (₹6 L each) |
Reducing |
| 66+ |
Remaining as needed |
- |
Why this works: Keeps money invested longer, draws as needed.
Strategy 4: Defer Exit
| Action |
Benefit |
| Continue NPS till 75 |
More accumulation years |
| Keep contributing |
Corpus grows |
| Delay annuity purchase |
May get better rates |
Why this works: Allowed to stay invested till 75 now.
Lumpsum vs SWP: What to Do with 60%
Option A: Invest in SWP
| Factor |
Details |
| Investment |
Balanced/equity mutual fund |
| Withdrawal rate |
4-5% annually |
| Expected return |
8-10% |
| Corpus growth |
Possible if returns > withdrawal |
| Risk |
Market risk |
Option B: Keep in FD/Debt
| Factor |
Details |
| Investment |
Bank FD, debt funds |
| Return |
6-7% |
| Risk |
Very low |
| Corpus |
Depletes over time |
Comparison for ₹60 L Lumpsum
| Option |
Monthly Income |
After 20 Years |
| FD (6.5%) |
₹32,500 |
Principal eroding |
| SWP (9% return, 5% withdrawal) |
₹25,000 |
Corpus grown to ₹80 L+ |
| Annuity (6%) |
₹30,000 |
Principal gone at death |
SWP may outperform but has market risk. Annuity has no risk but no growth.
Common Mistakes to Avoid
1. Choosing Annuity Without Comparing
| Mistake |
Impact |
Solution |
| Taking first offer |
May get lower rate |
Compare 3-5 providers |
| Not negotiating |
Missing better terms |
Ask for better rates |
2. Wrong Annuity Type
| Mistake |
Impact |
Solution |
| Life only (when married) |
Spouse gets nothing |
Choose joint life |
| Joint life (when single) |
Lower rate for no benefit |
Choose life only |
3. Not Considering Inflation
| Mistake |
Impact |
Solution |
| Fixed annuity at 60 |
₹20K today = ₹7K value at 80 |
Consider increasing annuity |
4. Withdrawing Everything Immediately
| Mistake |
Impact |
Solution |
| Full 60% lumpsum at once |
May spend unwisely |
Phased withdrawal |
| Lifestyle inflation |
Money runs out |
Planned withdrawals |
Exit Scenarios
Scenario 1: ₹50 L Corpus
| Component |
Amount |
Action |
| Lumpsum (60%) |
₹30 L |
Invest: ₹15 L SWP, ₹15 L FD |
| Annuity (40%) |
₹20 L |
Joint life with return |
| Annuity income |
~₹10,000/month |
Base pension |
| SWP income |
~₹6,250/month |
Additional income |
| Total monthly |
~₹16,250 |
|
Scenario 2: ₹1 Cr Corpus
| Component |
Amount |
Action |
| Lumpsum (60%) |
₹60 L |
₹40 L SWP, ₹20 L emergency |
| Annuity (40%) |
₹40 L |
Life annuity |
| Annuity income |
~₹23,000/month |
Guaranteed base |
| SWP income |
~₹16,667/month |
Growth potential |
| Total monthly |
~₹40,000 |
|
Scenario 3: ₹2 Cr Corpus
| Component |
Amount |
Action |
| Lumpsum (60%) |
₹1.2 Cr |
₹80 L SWP, ₹40 L debt |
| Annuity (40%) |
₹80 L |
Joint life with increasing |
| Annuity income |
~₹35,000/month (increasing) |
Inflation protected |
| SWP income |
~₹33,333/month |
Growth + income |
| Total monthly |
~₹68,000 |
|
New Rules (2024 Updates)
Extended Investment Till 75
| Old Rule |
New Rule |
| Must exit at 60 |
Can continue till 75 |
| Forced annuity at 60 |
Defer annuity purchase |
Systematic Lumpsum Withdrawal
| Feature |
Details |
| Frequency |
Monthly/quarterly/annually |
| Tenure |
Up to age 75 |
| Flexibility |
Adjust amounts |
Conclusion
| Decision |
Recommendation |
| Lumpsum |
Take full 60% if you can manage investments |
| Annuity type |
Joint life with return (if married) |
| Annuity provider |
Compare 3-5, choose highest rate |
| Lumpsum deployment |
Split: SWP for growth, FD for safety |
| Timing |
Consider deferring if not needed immediately |
Key takeaways:
- 60% lumpsum is completely tax-free—maximize it
- Annuity is taxable—factor this in planning
- Compare annuity providers for best rates
- Consider SWP as alternative to higher annuity
- Joint life annuity if you have spouse/dependents
- Can now defer exit till 75
Your NPS exit strategy should balance guaranteed income (annuity) with growth potential (lumpsum invested wisely).
Plan your NPS retirement: Use our NPS Calculator to estimate your corpus and SWP Calculator to plan lumpsum withdrawals.
