In short: Since 16 December 2025, private-sector NPS subscribers can take up to 80% of their corpus as a lump sum at 60 and need to put only 20% into an annuity. Before that, the split was 60% and 40%. It is the biggest change to NPS exits in years, and it makes NPS far more flexible. But only 60% of the corpus is tax-free, and an annuity is the one part of your retirement money that pays you for life, so taking the full 80% is not automatically the right choice.
What Changed
The Pension Fund Regulatory and Development Authority (PFRDA) amended the PFRDA (Exits and Withdrawals under the National Pension System) Regulations, 2015, with effect from 16 December 2025 (PFRDA press release). For a normal exit at 60 or at superannuation:
| Normal exit (private sector) | Before 16 Dec 2025 | From 16 Dec 2025 |
|---|---|---|
| Maximum lump sum | 60% | 80% |
| Minimum annuity | 40% | 20% |
| Full withdrawal allowed if corpus is | ₹5 lakh or less | ₹8 lakh or less |
| Latest age to defer withdrawal | 75 | 85 |
The premature exit rule, for those who leave before 60, has not changed: at least 80% must still buy an annuity, unless the corpus is ₹5 lakh or less.
Who the New Rules Cover
The change is aimed at the non-government sector: anyone in the All Citizen model (individuals who opened NPS themselves) and the Corporate model (NPS through a private employer). Central and state government employees are covered by separate provisions, so if you joined NPS through a government job, check the rules for your sector before you plan an exit. See the official summary from the Press Information Bureau.
Small Corpus Rules
For smaller balances at a normal exit, the amended regulations add more choice:
- Corpus of ₹8 lakh or less: withdraw it all as a lump sum, or through systematic withdrawals or unit redemptions.
- Corpus above ₹8 lakh and up to ₹12 lakh: up to ₹6 lakh as a lump sum, with the rest going to systematic unit redemption for at least six years or to an annuity.
- Corpus above ₹12 lakh: up to 80% as a lump sum, at least 20% to an annuity.
These thresholds come from PFRDA’s summary of the amendment; the consolidated regulations are the final word on the exact conditions.
How the Tax Works
This is the part most people will get wrong. The withdrawal limit went up to 80%, but the tax exemption did not. Under current income-tax law, 60% of the amount payable when you close your NPS account is exempt (Income Tax Department). So:
- The first 60% of your corpus taken as a lump sum is tax-free.
- The extra 20% now allowed is not covered by that exemption, so it may be taxed at your slab rate in the year you withdraw it.
- Annuity income is taxed at your slab rate each year as you receive it.
The Income-tax Act, 2025, in force from 1 April 2026, renumbered these provisions; the 60% exemption is what applies today. If you are near 60, get tax advice before choosing between 60% and 80%.
A ₹1 Crore Example
Say your NPS corpus at 60 is ₹1 crore. The annuity figures below assume an illustrative annuity rate of 6% a year; actual rates depend on the insurer, the annuity type and your age.
| Choice | Lump sum | Tax-free part | Annuity purchase | Pension (illustrative) |
|---|---|---|---|---|
| Old maximum (60/40) | ₹60 lakh | ₹60 lakh | ₹40 lakh | ≈ ₹20,000 a month |
| New maximum (80/20) | ₹80 lakh | ₹60 lakh | ₹20 lakh | ≈ ₹10,000 a month |
Taking 80% gives you ₹20 lakh more in hand, but that extra ₹20 lakh may be taxable, and your guaranteed pension halves. The 60/40 split is still allowed; the new rules only raise the ceiling.
How Much Should You Take?
There is no single right answer, but these questions settle it for most people:
- Do you have other guaranteed income? If you have a pension, EPS payout, rental income or an existing annuity covering your basic expenses, a smaller annuity is less risky, and a larger lump sum can make sense.
- Do you have a large, specific use for the money? Clearing a home loan, a child’s wedding or medical costs can justify the extra 20%, especially if the alternative is borrowing.
- Will you invest the lump sum well? A lump sum gives flexibility but no guarantee. If you plan to draw an income from it, a systematic withdrawal plan from a conservative mutual fund portfolio is one option; see our SWP guide.
- What does the extra 20% cost in tax? If it would be taxed at 30%, taking it in a year with lower other income, or not taking it at all, can be better.
- Do you need it now? You can defer until 85 and keep the money invested.
For a full retirement plan that combines NPS, EPF, PPF and mutual funds, see our retirement planning page, or model your corpus on the NPS page calculator.
Other NPS Changes Worth Knowing
- Up to 100% equity: since 1 October 2025, PFRDA’s Multiple Scheme Framework lets pension funds offer high-risk schemes for private-sector subscribers with up to 100% in equity, alongside the standard schemes capped at 75% (PFRDA circular).
- Lower fees for large funds: from 1 April 2026, the investment management fee for private-sector subscribers is slab-based, from 0.12% a year on a fund’s first ₹25,000 crore of assets down to 0.04% above ₹1.5 lakh crore (PIB).
- Tax deductions are unchanged: the extra ₹50,000 deduction under Section 80CCD(1B) is available only in the old tax regime, while your employer’s contribution of up to 14% of basic salary and DA is deductible in the new regime. See our tax planning page.
Frequently Asked Questions
How much of my NPS corpus can I withdraw at 60 under the new rules?
If you are a private-sector subscriber (All Citizen or Corporate model), you can now take up to 80% of your corpus as a lump sum at 60 and must use at least 20% to buy an annuity. Before PFRDA amended its exit regulations on 16 December 2025, the limit was 60% lump sum and at least 40% annuity. If your corpus is ₹8 lakh or less, you can withdraw all of it.
Is the full 80% lump sum tax-free?
No. Under current income-tax law, 60% of the amount payable on exit is exempt. Withdrawing the extra 20% that PFRDA now allows is not covered by that exemption, so it may be taxed at your slab rate in the year you withdraw it. Plan the withdrawal with a tax adviser. Annuity income is taxable at your slab rate as you receive it.
Do the new NPS withdrawal rules apply to government employees?
The 80/20 change is aimed at the non-government sector: subscribers under the All Citizen model and the Corporate model. Central and state government employees are covered by separate provisions, so they should check the rules that apply to their sector before planning a withdrawal.
What happens if my NPS corpus is small?
At a normal exit, a corpus of ₹8 lakh or less can be taken entirely as a lump sum, or through systematic withdrawals or unit redemptions. Between 8 lakh and ₹12 lakh, you can take up to ₹6 lakh as a lump sum and must put the rest into systematic unit redemption for at least six years or into an annuity.
Can I exit NPS before 60 and take 80%?
No. The premature exit rule is unchanged: if you leave before 60, at least 80% of the corpus must buy an annuity and at most 20% can be taken as a lump sum. Only if the corpus is ₹5 lakh or less can you withdraw it in full.
Do I have to withdraw at 60?
No. You can stay invested and defer both the lump sum and the annuity purchase until 85. Deferring keeps the money invested, which can help if you do not need it immediately.
PFRDA press release: key changes to the Exit Regulations · PIB: key amendments to the NPS exit regulations · PFRDA Exits and Withdrawals Regulations (as amended 16 Dec 2025) · PFRDA Multiple Scheme Framework circular · PIB: PFRDA fee reforms · Income Tax Department: tax-free incomes
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