The NPS 80% rule, and the 60% that is tax-free

In December 2025 the pension regulator amended the exit rules. A non-government subscriber — the All Citizen and corporate models — may now take up to 80% of the accumulated corpus as a lump sum at normal exit, using at least 20% to buy an annuity.

Where the corpus is ₹12 lakh or less, the annuity requirement falls away entirely and the whole amount can be withdrawn.

Government subscribers were not covered by the change: the old 60% lump sum and 40% annuity still applies to them.

The exemption in the income tax law still covers 60% of the corpus. Withdrawing 80% does not make 80% tax-free — the extra 20% is added to your income for the year and taxed at your slab rate.

On a ₹2 crore corpus that is ₹40 lakh of taxable income in one year, most of it in the 30% slab. The pension bought with the remaining amount is taxable as income in the years it is received, whatever share you chose.

Commentators have pointed out the mismatch and a later Budget may close it. Until it does, the two limits are different numbers and worth keeping apart when planning.

Take a subscriber who paid ₹10,000 a month from 30 to 60 and earned an average 10% a year. The corpus at exit is about ₹2.28 crore, from ₹36 lakh contributed.

Taking the larger lump sum roughly halves the pension and creates a tax bill in the year of exit. Taking the smaller one keeps the whole withdrawal tax-free and leaves a larger annuity.

The annuity rate is not fixed by the scheme: it is whatever the annuity service provider quotes for the option you choose — life annuity, with or without return of the purchase price, with or without a spouse's pension. Those options pay very different amounts, so the pension figure above is only as good as the rate you put in.

Neither choice is right in general. It depends on whether the money has a use at exit that beats a guaranteed income, and on what the tax on the extra 20% costs you in that year.

The withdrawal rules only matter once there is something to withdraw, and the amount is decided mostly by how early the contributions start. At an assumed 10% a year, reaching ₹1 crore needs:

Three times the monthly contribution at 20 years produces the same corpus as the smaller amount at 30. That gap dwarfs the difference between taking 60% and 80% at the end.

The same assumption cuts the other way: 10% is an assumption, not a promise. NPS money sits in equity, corporate bonds and government securities in a mix you choose, and the actual return will differ from any single number. Run the calculator at a conservative rate too.

NPS has benefits before exit as well, and they differ by regime.

Under the old regime, your own contribution counts towards the ₹1.5 lakh Section 123 limit, and there is an additional ₹50,000 deduction on top of it — the provision that used to be 80CCD(1B). Under the new regime, that extra deduction is not available, but a deduction for the employer's contribution of up to 14% of basic pay is.

That employer route is the reason corporate NPS is worth asking about: it is one of the few deductions the new regime still allows.

Partial withdrawals from your own contributions are allowed after a few years of membership, for specified reasons such as higher education, marriage, buying a home or serious illness, and are limited to a share of what you put in.

A full exit before 60 is treated differently from a normal exit: most of the corpus must go into an annuity, with only a small part taken as cash, unless the corpus is small enough to fall under the threshold for full withdrawal.

Because these limits are set by PFRDA and have changed more than once, check the current rules on the PFRDA site or with your fund before planning around them.

Three details decide the actual outcome, and none of them is in the headline: