Government and Non-Government Employees Can’t Withdraw 100% NPS Amount? Know All Details

This article explains in depth the recent amendments to the National Pension System (NPS) withdrawal rules introduced in late 2025 by the Pension Fund Regulatory and Development Authority (PFRDA). Retirement savings and pension planning have traditionally been rigid in India, with annuity purchase requirements restricting lump-sum access. 

The 2025 changes, however, expand flexibility, especially for private-sector (non-government) and government subscribers, allowing greater corpus access, even a 100% withdrawal in certain scenarios. We’ll unpack the eligibility conditions, the new slabs, tax implications, and broader impacts on retirement planning.

Why NPS Withdrawal Rules Matter?

The National Pension System (NPS) is India’s flagship defined-contribution retirement scheme, open to both government and non-government employees as well as self-employed individuals. 

Traditionally, at retirement, subscribers could withdraw only a portion of their corpus as a lump sum (60% lump sum for most), and the remaining had to be used to buy an annuity, ensuring a regular pension income. 

This was designed to protect retirees from outliving their savings. But many subscribers felt restricted, especially where corpuses were small or when greater liquidity was desired at exit.

For years, the annuity mandate and limited withdrawal flexibility made NPS less attractive compared with other long-term investment vehicles. Many investors deferred NPS subscriptions or avoided the scheme entirely, preferring voluntary retirement options such as EPF or mutual funds. This context sets the stage for why 2025’s withdrawal rule overhaul represents a potentially game-changing shift in India’s retirement savings landscape.

The Revamped Withdrawal Framework

The big change formalised by PFRDA in December 2025 under the PFRDA (Exits and Withdrawals under the National Pension System) Amendment Regulations, 2025 is that subscribers now have greater freedom to access their accumulated pension wealth (APW) at exit, whether at retirement or on meeting specified conditions.

The old rules typically allowed:

• 60% of corpus as a lump-sum withdrawal at retirement;
• 40% of corpus had to be used to purchase an annuity (to generate a pension);
• Full corpus withdrawal only if the total corpus was below a very small threshold (e.g., ₹2.5 lakh or similar rules).

The new regulations significantly relax these norms for both non-government and government subscribers.

Key 2025 NPS Withdrawal Changes

Below is a summary of the key withdrawal changes introduced by PFRDA and how they differ from the prior regime.
 

The 2025 overhaul substantially increases liquidity and flexibility for NPS subscribers — enabling up to 80% immediate corpus access and, in certain corpus slabs, even 100% withdrawal without mandatory annuity purchase for non-government subscribers. It also introduces structured exit age flexibility up to 85 years, giving subscribers greater control over retirement savings management.

When Is 100% Withdrawal Allowed?

Under the updated rules, both government and non-government NPS subscribers can withdraw their entire accumulated pension wealth in certain situations — a significant break from prior norms.

Non-Government Subscribers

According to Upstox and other reporting:

• If the total accumulated pension wealth (APW) is ₹8 lakh or less, the subscriber can withdraw 100% of the corpus in lump sum or through systematic methods.
• No annuity purchase is mandatory in such cases.
• This applies to private sector, corporate, or All Citizen Model NPS accounts.

Government Subscribers

For those in the government sector (central/state government employees), the rules are similar but also include special clauses:

• APW up to ₹8 lakh at normal retirement: 100% withdrawal allowed, with no annuity purchase required.
• In the case of subscriber death, if the total APW is ≤ ₹5 lakh, nominees/legal heirs can withdraw 100% corpus.
• Government subscribers can stay invested in NPS until age 85 and exit later if they choose

These conditions mean that smaller corpus holders, especially those who started NPS late or had conservative contributions, gain full liquidity options they previously lacked.

How the Corpus Slabs Work?

The new withdrawal framework operates on multiple corpus slabs, giving subscribers tailored exit options:

Withdrawal Options by Corpus Slab
 

By introducing these slabs, PFRDA has balanced flexibility with retirement security. Smaller savers receive full access to their funds, while larger corpus holders still need to allocate part of their savings to annuity, preserving a pension income base.

Other Important Features of the New NPS Rules

Beyond 100% withdrawal lines, the 2025 changes introduce several other subscriber-friendly features:

• Reduced mandatory annuitisation for non-government subscribers from 40% down to 20%, increasing cash liquidity at retirement.
• Extended exit age up to 85 years, giving retirees the option to defer withdrawals and annuity purchases for up to 25 more years after traditional retirement.
• Systematic Unit Redemption (SUR) or Systematic Lump-sum Withdrawal (SLW) enable regular or phased corpus access instead of a single lump sum, improving retirement income planning.
• Flexible exit criteria, such as no longer needing to strictly exit at 60 if a subscriber has completed 15 years of subscription or reached superannuation earlier.
• Option for subscribers joining after 60 years to still exercise flexible withdrawal pathways — provided corpus conditions are met.

Tax Implications of the New Withdrawal Regime

While the PFRDA has liberalised withdrawal access, the tax treatment remains governed by the Income Tax Act, 1961, and is not automatically tax-free just because the regulations allow withdrawal flexibility:

• In general, up to 60% of lump-sum withdrawal (under traditional norms) was tax-free.
• Under updated rules, 80% or 100% lump-sum access at exit may still attract tax depending on the specific tax provisions that apply at the time of exit and how the amount is classified under retirement withdrawal rules — especially for amounts above traditional tax-free limits.
• Subscribers should consult a tax advisor on how much of their lump-sum exit will be exempt vs taxable.

Conclusion

The 2025 NPS rule changes represent one of the biggest structural overhauls in India’s pension system in years. They bring the scheme closer to subscribers’ expectations of liquidity, flexibility, and control over retirement funds while still preserving a framework for lifetime income through mandatory annuity purchase in higher corpus scenarios.

The ability to withdraw 100% of the corpus up to ₹8 lakh without a forced annuity purchase is a major shift, particularly for non-government NPS subscribers who historically faced restrictive exit rules. It reflects a broader trend of making retirement systems more adaptable to individual needs without completely abandoning long-term pension security.

For current and future NPS investors, understanding these new rules, especially the withdrawal slabs, annuity obligations, and tax implications, is crucial to effective retirement planning in 2026 and beyond.
 

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