How To Close an NPS Account

How To Close an NPS Account?

In recent years, the National Pension System (NPS) has gained immense popularity as a voluntary retirement savings scheme in which people tend to invest for enhanced financial security during their golden years. Regulated by the Pension Fund Regulatory and Development Authority, PFRDA, its low cost, flexibility, and tax benefits make NPS ideal for long-range retirement planning.

However, as the course of life can be quite unpredictable, you will probably face a situation wherein you will have to close your NPS account. The reasons could differ, for instance, changing to other investment plans or the need to access the money for urgent reasons, among other factors. The motives aside, the process of closure can be quite daunting without the right help. This article will serve to elaborate on the processes, step by step, involved in closing the NPS account which will enable the reader to have a hassle-free experience.

Eligibility and Requirements For Closing An NPS Account

To begin with, the process of closing an NPS account is subject to some eligibility norms and understanding the completion requirements, especially the documentation needed. It is important to note that not everyone can close their account at any point in time; certain conditions should be fulfilled. 

Usually, an NPS account can only be closed once individuals reach 60 years of age, which is the stipulated retirement age under the scheme. Nonetheless, early closure is also permitted in certain exceptional cases such as health issues or the member having maintained his account for not less than ten years. The scheme also allows for partial withdrawals during the phase of accumulation, but full exit from the account is generally done upon reaching retirement age or in certain unusual cases.

Lastly, the PFRDA mandates a comprehensive set of documents, like a withdrawal form, identity proof, and a bank account statement to which funds will be credited. If you opt for an annuity, you will have to mention the details of the annuity service provider along with a PAN card and an Aadhaar card for KYC verification. It is advisable to prepare these papers ahead of time in order to avoid delays later in the process.

Steps To Close an NPS Account

Having familiarised yourself with the eligibility and requirements, let us proceed to the steps of closing the NPS Account. Each stage is important to avoid any complications during the exit.

Initiating The Exit Request:

The foremost doable when it comes to ceasing your NPS account is an exit request. This can be done by visiting your existing Point of Presence (PoP) service provider, which could be a bank or any other financial institution authorised for NPS accounts management. Alternatively, you can access the official NPS portal by logging in using your possession credentials to initiate the exit request online. Either way, you will have to complete the withdrawal form fillup indicating the reason for closure which could be anything between retirement to early withdrawal for certain reasons.

Choosing The Type of Withdrawal:

Once the exit request has been submitted, the next critical step is to choose the type of withdrawal that aligns with your financial goals and the scheme’s guidelines. The NPS provides multiple options for withdrawing the accumulated corpus. Subscribers reaching the age of 60 can withdraw up to 60% of their total savings as a lump sum. The remaining 40% is mandatory to be used for purchasing an annuity, ensuring a regular income post-retirement. For those opting for premature closure, only 20% of the corpus is allowed as a lump sum, while 80% must be allocated towards purchasing an annuity.

It is important to carefully evaluate these options before making a final decision, as your choice will impact your future financial stability.

Annuity Purchase:

For most NPS account closures, purchasing an annuity is a mandatory requirement. An annuity is a financial product that provides regular payments over time, allowing you to secure a steady income post-retirement. The PFRDA has approved a list of annuity service providers from which you must choose when closing your account. Each provider offers various types of annuities, such as life annuities or those with return of purchase price, giving you the flexibility to select the plan that best suits your financial needs and lifestyle.

This decision is irreversible, making it essential to understand the annuity plan’s features, benefits, and payout structure before committing to a particular provider.

Submission of Documents:

With the withdrawal request and annuity option chosen, the next step is submitting the required documents to your PoP or uploading them online via the NPS portal. This documentation includes your filled withdrawal form, proof of identity and address, bank account details, and the annuity provider’s form. Accurate and timely submission of these documents expedites the process and prevents unnecessary delays. Ensuring all required details are correct will allow for a quicker verification and settlement of funds.

Verification and Processing:

Once all the documents are submitted, they undergo a thorough verification process by the NPS trust. During this time, the authorities cross-check the details provided, including your KYC credentials and annuity selection. Processing times vary, but typically, once the documents are verified, the withdrawal request is approved within a few weeks. The lump sum withdrawal will be credited to your registered bank account, and the annuity purchase will be processed accordingly.

Subscribers are notified once their account has been successfully closed and funds disbursed. To stay informed about the progress, it is recommended that you keep track of the application status online or by contacting your PoP.

Taxes and Penalties:

The NPS offers tax benefits during the accumulation phase, but the closure process comes with tax implications, especially when withdrawing a lump sum. The amount withdrawn up to 60% is exempt from taxes. However, any amount exceeding is taxable under the subscriber’s income bracket for the financial year. Annuities are also subject to taxation as per the income tax rules. Premature closures may also attract penalties, especially if the closure happens before the subscriber turns 60, with stricter withdrawal limits and tax implications. Being mindful of these potential costs helps in planning the exit better and minimizing financial setbacks.

Final Words

While you get ready to close your NPS account, keep in mind that it is more than just a simple investment. It is the end of a disciplined savings phase and the beginning of the retirement stage of your life. The steps taken during the process of closing an account can have lasting effects on your finances in future years.

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