NPS Exit Before 60 (2026): Early Withdrawal Rules, Tax Impact & What Really Happens
- Buragadda Praneet
- 4d
- 8 min read
If you are facing a sudden job change, a career break, or a financial emergency, the question is simple: “Can I take my NPS money out now, or is it locked until I’m 60?”
The short answer is yes, you can exit. However, unlike a savings account or a bank FD, a premature exit from the National Pension System (NPS) is a permanent decision with specific "rules of the road."
In 2026, the landscape has shifted. Following the latest PFRDA amendments, the "small-corpus" relief has been raised to ₹10 Lakh, and new structured withdrawal options have been introduced. This guide walks you through the 2026 regulations, the tax impact, and how to avoid the "80% pension trap" to ensure you make the right move for your current needs and your future security.
Contents:
1. “I Need My NPS Money Before 60. ”
If you’re reading this, chances are something unexpected has happened.
You lost your job.
You’re taking a career break or starting a business.
You’re moving abroad.
A family or medical emergency has come up.
And the question feels urgent:
“I’ve put money into NPS for years. Can I take it out before 60, or is it locked forever?”
Here’s the honest answer:
Yes, NPS allows exit before 60 years old. But it does not work like EPF or a bank FD, and that’s where most confusion (and panic) begins.
NPS is designed to protect long-term retirement income, so early exit comes with strict guardrails, not blanket freedom.
2. What “NPS Exit Before 60” Actually Means
Before looking at numbers, it’s crucial to understand the terminology.
Premature Exit = Permanent Closure
When you exit NPS before 60:
Your Tier-I account closes permanently.
You cannot re-enter using the same PRAN.
The system enforces mandatory pension preservation.
This is very different from:
Partial Withdrawal → account stays active.
Normal Exit (after 60) → higher flexibility.
Simple rule to remember:
Need temporary money? → Partial withdrawal.
Closing the account entirely? → Premature exit (with pension lock-in)
3. Who Is Allowed to Exit NPS Before 60?
While the National Pension System (NPS) is designed for long-term retirement planning, an "Early Exit" is possible. However, the eligibility and process depend heavily on your sector.
Non-Government Subscribers (All Citizens & Corporate)
Private sector employees and self-employed individuals have the most flexibility, though it is not an unconditional "ATM" facility.
Minimum Tenure: As of 2026, you must have completed at least 5 years from the date of your first contribution to initiate a premature exit.
The "Lock-in" Reality: For most, there is no automatic right to 100% cash. Unless your corpus is small (see Section 4), the system forces a pension mindset.
CRA Governance: All exits are processed via the Central Recordkeeping Agency (CRA) and must comply with the latest PFRDA Master Circulars.
Government Subscribers
For those in the public sector, exiting before age 60 is usually a "service-linked" event rather than a personal financial choice.
Trigger Events: Early exit is permitted only upon Resignation, Removal, or Dismissal from service.
The "20-Year" Nuance: In 2026, government employees who resign after 20 years of qualifying service may be treated under "Retirement" rules, allowing for a 60% lump-sum withdrawal instead of the strict 20% premature limit.
If your exit is triggered by a job change, don't leave your old EPF balance behind. It can be merged or withdrawn separately. Check our Complete 2026 Guide to EPF Withdrawal & Service Mergers to ensure you aren't missing out on your employer's contribution.
4. Confirmed Premature Exit Rules (2026)
This is the most critical update for 2026. The PFRDA has significantly raised the limits to allow subscribers with smaller balances to exit without being forced into tiny, impractical pensions.
4.1 The 20:80 Rule (The Default)
If your total corpus (contributions + market growth) exceeds the small-corpus threshold:
Maximum 20%: Paid as a tax-free lump sum.
Minimum 80%: Must be used to purchase an Annuity (Monthly Pension).
The "Pension Trap": If you have ₹15 Lakh and exit early, you only get ₹3 Lakh in cash. The remaining ₹12 Lakh is locked away for life to pay you a monthly pension.
4.2 The "Small-Corpus" 100% Withdrawal Rule
In 2026, the threshold for a full cash-out has been increased to provide better liquidity.
Scenario (2026 Rules) | Total Corpus Value | Withdrawal Limit |
Premature Exit (Before 60) | Up to ₹10 Lakh | 100% Lump Sum (No Annuity required) |
Premature Exit (Before 60) | Above ₹10 Lakh | 20% Lump Sum / 80% Annuity |
Normal Exit (At age 60) | Up to ₹15 Lakh | 100% Lump Sum |
Warning: If your corpus is even slightly above ₹10 Lakh (e.g., ₹10,05,000), the 80% annuity rule triggers automatically. You cannot "choose" to take more cash in this scenario.
If your corpus is above ₹10 Lakh and you hate the idea of an 80% lock-in, consider an EPF advance instead. It’s tax-free and doesn't close your account. Compare the two here: EPF Form 31: PF Advance Rules for 2026.
5. What You Cannot Do If You Exit Early
This is where expectations usually break.
You cannot:
Withdraw 100% if the corpus is above ₹5 lakh.
Avoid annuity in most early-exit cases.
Keep the NPS account open after exit.
Treat NPS like EPF or a savings account.
Most exit rejections happen not because people are ineligible but because expectations don’t match how NPS is designed.
6. Early Exit vs Partial Withdrawal
Before exiting permanently, pause and compare:
Partial Withdrawal
Account stays active
Limited percentage withdrawal
No pension lock-in
Lower long-term damage
Premature Exit
Account closes forever
80% pension lock-in
Annual taxable pension income
High opportunity cost
In many real-life emergencies, partial withdrawal solves the problem without triggering the 80% annuity rule.
Feature | Partial Withdrawal | Premature Exit |
Impact on PRAN | Account stays Active | Account Closed Permanently |
Withdrawal Basis | 25% of Your Contributions | 20% of Total Corpus (including gains) |
Taxation | 100% Tax-Free | Lump sum tax-free; Pension is Taxable |
Frequency | Up to 4 times (new 2026 limit) | One-time permanent decision |
The Verdict | Best for Immediate Crisis | Best for Emigrating or Total Exit |
7. Tax Impact of NPS Exit Before 60
This is where many people get shocked after the exit.
Lump-Sum Taxation
Tax exemption is governed by the Income-Tax Act, not just NPS rules
Only the permitted portion is tax-free.
Excess (if any) is taxed at the slab rate.
Annuity (Pension) Taxation
The monthly pension is fully taxable every year.
Taxed as income in the year of receipt
No special exemption for early-exit pension
Simple Example
NPS corpus: ₹10 lakh
Early exit allowed:
₹2 lakh lump sum
₹8 lakh annuity
Result:
₹2 lakh → mostly tax-free
Monthly pension from ₹8 lakh → taxable every year
8. How Early Exit Is Actually Processed
Understanding execution reduces anxiety.
Process Overview
Online exit via CRA portal (Aadhaar e-sign)
Offline POP route for frozen or legacy cases
Penny-drop bank verification is mandatory.
Any mismatch between:
PRAN name
Aadhaar name
Bank account name
→ exit gets frozen, not rejected.
Timelines (Typical)
Lump-sum credit: 7–10 working days
Annuity setup: 15–20 working days
9. Why Early Exit Requests Get Stuck
If your request is "Pending" or "Frozen," it is rarely a rejection. Usually, it is a technical mismatch in the CRA backend.
Penny Drop Failure: The mandatory ₹1 bank verification failed because your bank name doesn't match your PRAN record (e.g., "A. Kumar" vs "Anil Kumar").
FATCA Non-Compliance: If you haven't declared your residency status (crucial for NRIs), the exit will not trigger.
Sector Mismatch: If you moved from a Government job to a Corporate job but never updated your Subscriber Shift Form (ISS), the system will block the exit.
Most "stuck" NPS requests are due to simple data errors. If your name or DOB doesn't match your records, the process will fail. Use our Joint Declaration Form Guide to learn how to fix profile errors across all your retirement accounts.
10. When You Should Get Expert Help
You should consider help if:
Exit shows “Approved,” but no money is credited.
An annuity is not generated.
You switched between government and private jobs.
NRI repatriation is involved
Early exit causes large tax exposure.
Is Your Withdrawal Currently Frozen? Don't keep clicking "Resubmit" and risking a permanent block. Let our experts run a Free NPS Diagnostic Scan to identify the exact backend mismatch holding up your funds.
Conclusion:
Deciding to exit NPS early is rarely easy often, it is a choice forced by life’s unexpected financial pressures. It is completely understandable to feel like you need to access every available resource when things get tough. However, because NPS is designed to be your safety net for old age, the system penalizes a premature exit by locking 80% of your hard-earned money into a small monthly pension that you cannot touch today.
Before you take this permanent step, please pause and look for other lifelines. Options like a partial withdrawal or accessing your EPF (if you are salaried) might provide the immediate relief you need without sacrificing your financial freedom. If you absolutely must exit, do so with full awareness, but try to treat this as your last resort your future self will thank you for keeping this door open.
FAQs
1. Can I exit NPS before the age of 60?
Yes, NPS allows exit before 60, but it is treated as a premature exit, not a normal withdrawal. This means your Tier-I account is closed permanently, and stricter rules apply compared to exiting at 60.
2. Is early exit allowed for all NPS subscribers?
Yes, but with different flexibility.
All Citizen / Corporate subscribers → Early exit allowed under NPS rules.
Government subscribers → Early exit allowed only in specific service conditions (resignation, removal, dismissal)
Government subscribers generally face more restrictions than private subscribers.
3. Does resigning from my job allow full withdrawal of NPS?
No. Resignation or job loss does not automatically allow full withdrawal.
Your withdrawal depends on:
Your total NPS corpus
Your subscriber category
Applicable NPS exit rules at the time of request
If your corpus is above ₹5 lakh, the 20:80 rule still applies, even after resignation.
4. What happens to my NPS money if I exit before 60?
Your NPS corpus is split as follows:
Up to 20% → Paid to you as a lump sum.
Minimum 80% → Used to purchase an annuity, which pays a monthly pension
You do not lose money, but most of it becomes locked into future pension income, not immediate cash.
5. Can I withdraw 100% of my NPS before 60?
Only in one specific case.
If your total NPS corpus is ₹5 lakh or less at the time of exit:
You can withdraw 100% as a lump sum.
No annuity is required.
If your corpus exceeds ₹5 lakh even slightly, mandatory annuity applies.
6. Is partial withdrawal better than premature exit?
In most cases, yes.
Partial withdrawal:
Keeps your NPS account active
Allows limited withdrawal without pension lock-in
Causes less long-term financial damage
Premature exit should be considered only when partial withdrawal is not sufficient or not allowed.
7. Is the lump-sum amount taxable if I exit early?
Generally:
The permitted lump-sum portion is tax-exempt under current tax laws.
Any withdrawal beyond permitted limits is taxed at your income-tax slab
Tax treatment depends on Income-Tax Act provisions, not just NPS rules.
8. Is the pension received from an annuity taxable?
Yes. Fully taxable.
A monthly pension is treated as regular income.
Taxed every year in the year of receipt
No special tax exemption for early-exit pension
This is often the most underestimated cost of early exit.
9. Why does the pension amount look very low after early exit?
This is common and structural.
Reasons include:
Early exit stops long-term compounding.
A smaller corpus leads to a smaller pension.
Annuity rates are market-linked, not high-return products
The pension feels low because NPS is designed for long-term retirement, not short-term exits.
10. What does it mean when my NPS exit request is “stuck”?
A “stuck” exit usually means the request is frozen, not rejected.
Common reasons:
PRAN frozen due to missed minimum contribution
FATCA compliance pending (common for NRIs)
Bank / Aadhaar / PRAN name mismatch
Sector history error (government ↔ private switch)
Once corrected, the exit usually proceeds.
Disclaimer: This article is for informational purposes only and does not constitute legal or financial advice. Rules may vary based on individual records and EPFO processing.
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