How to exit NPS after the new tax regime removed the 80C benefit

I opened an NPS for the tax break. How do I get out?

December 2025's PFRDA amendment lets small accounts walk away with everything. For larger ones, here is what you can do when the rules will not let you out.

December 2025's PFRDA amendment lets small accounts walk away with everything. For larger ones, here is what you can do when the rules will not let you out. Vinayak Pathak/AI-Generated Image

Summary: "I opened an NPS account purely for the Rs 50,000 tax break. The new regime has taken that away. I am not interested in continuing. Can I take my money out? And if I cannot, how do I make the best of it?"

Until December last year, the answer was difficult. The PFRDA Amendment Regulations of 2025 have made it clearer, with a sharp cut-off at Rs 5 lakh.

The new exit rules, in plain English

PFRDA notified the Exits and Withdrawals (Amendment) Regulations on December 12, 2025. Three changes matter.

The five-year lock-in is gone. Non-government subscribers (All Citizen Model and Corporate Model) can now exit at any time.

Small accounts walk away whole. If your accumulated pension wealth is Rs 5 lakh or less, a voluntary exit entitles you to 100 per cent of the corpus as a lump sum. The earlier threshold was Rs 2.5 lakh.

Larger accounts hit the annuity wall. Above Rs 5 lakh, voluntary exit forces 80 per cent of the corpus into a compulsory annuity. Only 20 per cent comes back as a lump sum.

Step one is to check your corpus on the CRA portal. The Rs 5 lakh line decides what follows.

Below Rs 5 lakh: Just exit

Most accounts opened for the Rs 50,000 deduction sit between Rs 50,000 and Rs 2 lakh, well below the threshold. File the exit application on your CRA portal, verify your bank account, and the full corpus will be credited in 5-10 working days.

A tax footnote. Section 10(12A) of the Income Tax Act exempts 60 per cent of the lump sum. The balance is taxable as your income in the year of withdrawal. For a Rs 1 lakh corpus, the basic exemption absorbs it. For larger accounts, the tax may bite.

Corporate Sector subscribers who have left that employer must first file Form ISS-1 to shift the PRAN to the All Citizen Model. The PRAN stays the same, the corpus stays the same. Procedural, not a barrier.

Above Rs 5 lakh: The annuity trap

Suppose your corpus is Rs 7 lakh. Voluntary exit gives you Rs 1.4 lakh as a lump sum and locks Rs 5.6 lakh into an annuity. Life-annuity rates today are 6-6.5 per cent for a 60-year-old buyer and 4 to 5 per cent for younger buyers, because insurers price for more years of payouts. At 5 per cent on Rs 5.6 lakh, that is Rs 2,333 a month, taxable at the slab rate. A low-yield, illiquid, taxable income stream you cannot reverse.

Three better options.

Option one. Wait for normal exit. Normal exit now triggers at 15 years of subscription or age 60, whichever comes first. At normal exit, accounts up to Rs 8 lakh qualify for a 100 per cent lump sum. If you opened your account in 2011 or 2012, you are already at the 15-year mark. Pay the minimum of Rs 1,000 each year and exit whole.

Option two. Treat it as a low-cost retirement bucket. NPS pension funds charge up to 0.12 per cent in the Common Scheme and up to 0.30 per cent in the Multiple Scheme Framework, against 1 to 1.5 per cent for equity mutual funds. PFRDA now permits up to 100 per cent equity. Direct new contributions to a high-equity scheme and let the money compound.

Option three, for salaried readers. If your employer is registered for Corporate NPS, ask payroll to route a portion of your CTC under 80CCD(2). Under the new tax regime, employer contributions up to 14 per cent of Basic and Dearness Allowance are deductible from your taxable salary. This is the one NPS tax benefit that survived the regime change.

The bottom line

Below Rs 5 lakh, exit cleanly. Above Rs 5 lakh, do not. The 80 per cent annuity is a trap you cannot undo. Wait for normal exit, treat the account as low-cost retirement money, and use 80CCD(2) if your employer offers it.

The tax savings that brought you into NPS are gone. The case for staying or leaving now turns on your corpus and your years to retirement. Both are knowable. Decide on them.

Also read: New NPS: More freedom, less annuity, bigger retirement role

This article was originally published on May 14, 2026.

Disclaimer: This content is for information only and should not be considered investment advice or a recommendation.

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