PFRDA offers early leavers a second chance to join NPS

The Pension Funds Regulatory and Development Authority of India (PFRDA) has offered another chance to the National Pension System (NPS) subscribers opting for premature exit to join the scheme, it said in a circular issued Wednesday.

Subscribers can do so through re-deposit of the withdrawn amount or opening of a new Permanent Retirement Account Number (PRAN). Under current rules, subscribers can prematurely exit the NPS before it matures when they turn 60. However in this case, 80% of their corpus is converted to an annuity (regular pension) and the balance 20% can be withdrawn as lumpsum. Both components are taxable.

After receiving a lot of requests from subscribers who have withdrawn their lumpsum (20%) but have not yet availed the annuity (80% of corpus) to rejoin the NPS, the regulator allowed them to return to the pension scheme.

The PFRDA has given two options to such subscribers opting for premature exit, who subsequently change their minds. First, they can pay back the 20% they have withdrawn and continue contributing to the system under their existing PRAN. This option can only be availed once in a lifetime and the re-deposit must be done in a single instalment. Second, they can opt for the annuity and complete the withdrawal process. Following this, they can open a new NPS account with a new PRAN and begin contributing to it.

The 20% withdrawal from NPS is tax free and no TDS is deducted on it by the NPS Trust or pension fund manager. The balance 80% used to buy an annuity is also tax exempt. However, the annuity itself is added to your income and taxed in every year of payment. But there is a smoother alternative to premature withdrawal and re-deposit. You can instead consider the partial withdrawal option under the NPS. Three such withdrawals are allowed up to 25% of the subscriber’s total contributions and are free of tax.