Last Updated: 15 November 2026
If you have an NPS account, or you are thinking of starting one for your retirement, this news matters a lot to you. The rules of pension in India have changed. You now have much more freedom in withdrawing your money, and you can stay invested for far longer after retirement. But there is one thing most people are getting wrong, and that mistake can cost you heavily in tax.
In this article, we explain the NPS New Rules 2026 in simple words, one by one. Which rule changed, who benefits, how much money you can withdraw at once, and what to watch out for in tax — everything in plain language. At the end, there are three worked examples, so you can see what the new rules mean for your own savings.
NPS New Rules 2026: At a Glance
| Rule | Before | Now (2026) |
|---|---|---|
| Full withdrawal (no annuity) | Corpus up to Rs 5 lakh | Corpus up to Rs 8 lakh |
| Lump sum on Rs 8-12 lakh corpus | No separate slab | Up to Rs 6 lakh lump sum, balance via annuity or SUR |
| Above Rs 12 lakh corpus (non-government) | 60% lump sum + 40% annuity | 80% lump sum + 20% annuity |
| Age till which you can stay invested | Up to 75 years | Up to 85 years |
| Maximum joining age | 65 years | 70 years |
| Vesting period for normal exit | Longer tenure needed | 15 years |
| Partial withdrawal | After 5 years, 3 times, 5-year gap | After 3 years, 3 times, no gap |
| Tax-free withdrawal | Up to 60% | Up to 60% only (unchanged) |
These changes come from the PFRDA (Exits and Withdrawals under the NPS) (Amendment) Regulations, 2025, notified in December 2025 (PFRDA Notification No. PFRDA/16/14/06/0009/2018-REG-EXIT). The rules apply in 2026.
What Is NPS? Understood in Two Minutes
NPS stands for National Pension System. It is a government-backed retirement savings scheme, regulated by PFRDA (Pension Fund Regulatory and Development Authority) under the PFRDA Act, 2013. You put in a little money during your working years, that money is invested in the market, and after the age of 60 you get a pension and a lump sum amount.
NPS has two accounts. The Tier 1 account is for retirement, and this is the one that gets tax benefits. The Tier 2 account is like a savings account, from which you can withdraw money any time. Every account holder gets a PRAN (Permanent Retirement Account Number). Your money is recorded with a CRA (Central Recordkeeping Agency) such as NSDL or KFintech, and pension funds invest it for you.
Change 1: You Can Stay Invested in NPS Till Age 85
Earlier, you could stay invested in NPS only till the age of 75. Under the new rules, this limit has been raised to 85 years. This means that even after 60, if you are still working or do not want to withdraw your money, you can keep your corpus invested and let it grow.
You can keep contributing after 60 if you wish, or stay invested without contributing. Buying an annuity can also be deferred till 85. One thing to remember: if the account holder dies before buying the annuity, the family may have to buy the default annuity. So take the deferral decision after talking to your family.
Change 2: Full Withdrawal up to Rs 8 Lakh
This is the biggest change. Earlier, you could withdraw the full amount at once only if your total corpus was up to Rs 5 lakh. Now this limit has been raised to Rs 8 lakh. So at the age of 60, if your total NPS corpus is Rs 8 lakh or less, you can withdraw the entire amount as a lump sum. There is no need to buy an annuity.
This rule applies at normal exit (age 60) and in death cases. For people retiring with a small corpus, this is a big relief, because earlier they too had to buy an annuity, and the monthly pension from it was very small.
Change 3: A New Slab for Rs 8-12 Lakh Corpus
If your corpus is more than Rs 8 lakh and up to Rs 12 lakh, you can withdraw up to Rs 6 lakh as a lump sum. The remaining amount goes into an annuity or comes through Systematic Unit Redemption (SUR) in instalments. This slab did not exist before. It gives middle-sized corpus holders more cash in hand at once.
Change 4: 80% Lump Sum Above Rs 12 Lakh (Non-Government)
For private sector or self-employed (non-government) account holders, you can now take up to 80% as a lump sum on a corpus above Rs 12 lakh, and only 20% needs to go into an annuity. Earlier, this ratio was 60% lump sum and 40% annuity.
But note: the 80% rule is only for non-government account holders. For government employees, the old rule still applies, which is 60% lump sum and 40% annuity. So check your sector before applying the rule to yourself.
| Total Corpus at 60 (Non-Government) | Lump Sum | Annuity |
|---|---|---|
| Up to Rs 8 lakh | 100% (full amount) | Not required |
| Rs 8 lakh to Rs 12 lakh | Up to Rs 6 lakh | Balance via annuity or SUR |
| Above Rs 12 lakh | Up to 80% | Minimum 20% |
Change 5: Premature Exit Made Easier
If you want to exit NPS before the age of 60, there used to be a 5-year lock-in under the All Citizen Model. The new rules have removed this lock-in. Now you can take a premature exit without completing any minimum subscription period.
On premature exit, if your corpus is Rs 5 lakh or less, you can withdraw the full amount, with no annuity needed. If the corpus is more than Rs 5 lakh, you get 20% as a lump sum and 80% must go into an annuity. This rule exists so that even if you exit early, some regular income is protected for your old age.
Change 6: Partial Withdrawal Rules Eased
Sometimes you need money before retirement, for a daughter’s wedding, education, medical treatment or building a house. For this, NPS allows partial withdrawal. PFRDA’s circular of 6 April 2026 (PFRDA/2026/04) has made these rules easier still.
Now you can take a partial withdrawal just 3 years after joining NPS; earlier you had to wait 5 years. You can withdraw up to 25% of your own contributions. You can take partial withdrawals a maximum of 3 times during your entire NPS tenure, and there is now no minimum gap between two withdrawals.
For which purposes can you take a partial withdrawal? Higher education, marriage, medical treatment, buying or building a house, home renovation, critical illness, disability, and natural calamity. Natural calamity is a newly added reason. Partial withdrawals for approved purposes are tax-free.
Change 7: Taking Money in Instalments (Retirement Income Schemes)
PFRDA introduced Retirement Income Schemes (RIS) through its circular of 15 May 2026 (PFRDA/2026/31/MWnR/01). This means you can take your lump sum in instalments instead of all at once. There are two ways to do this: Systematic Lump Sum Withdrawal (SLW) and Systematic Unit Redemption (SUR).
Under SLW, your lump sum amount comes to you in monthly, quarterly or annual instalments, and under the RIS Steady option the money stays invested on a set glide path. This facility can run up to the age of 85. One important point: this facility will start only when the CRAs (NSDL or KFintech) have their systems ready. So before planning around it, do ask your CRA whether the option is live.
Change 8: Loan Facility Against NPS Corpus
The new framework also allows you to take a loan against your NPS corpus. This lets you meet a short-term need by borrowing against your savings, without finishing your retirement fund completely. The loan is linked to your own contribution portion, and repaying it restores the corpus over time. The exact terms will follow PFRDA rules, so do check the latest rules before taking a loan.
The Most Important Warning: Only 60% Is Tax-Free
This is the most important point in this article, and many people are getting it wrong. PFRDA has raised the lump sum withdrawal limit to 80%, but the Income Tax law gives exemption only up to 60% (Section 10(12A) of the Income Tax Act).
What this means is simple: you can withdraw 80%, but only 60% of it will be tax-free. The remaining 20% will be added to your income and taxed as per your tax slab. The February 2026 Budget also did not raise this 60% limit.
Buying an annuity is not taxed at the time of purchase, but the pension you receive from the annuity every month is taxed when you receive it. So do not decide your withdrawal by looking only at PFRDA rules; work out the tax side too. If your total yearly income is below the basic exemption limit, you may end up paying no tax at all.
Change 9: NPS Schemes Now Grouped Into A to E Risk Labels
On 28 August 2026, PFRDA issued two circulars (PFRDA/2026/47/REG-PF/10 and PFRDA/2026/48/REG-PF/11) that sort all NPS schemes into five categories: Lifecycle-based, Active Choice, NPS Sanchay, MSF (Multiple Scheme Framework) and Regulation 4A schemes (such as NPS Vatsalya, NPS Swasthya and NPS MSME).
MSF schemes will now carry a risk label from A to E, decided only by their equity share. A will be the highest-equity scheme, E the lowest. Each pension fund can offer at most two schemes in one category. In one financial year, you can submit at most two change requests for your pension fund or scheme. This rule does not apply to government-sector accounts.
Along with this, non-government account holders now get a 100% equity option under MSF, which means you can put your entire money in equity if you wish. It offers the hope of higher returns, but the risk is also higher.
Three Examples: What the New Rules Mean for Your Money
Example 1: Rs 4.5 lakh corpus, age 60. You can withdraw the full Rs 4.5 lakh at once, with no annuity needed. For tax, 60% (Rs 2.7 lakh) is tax-free, and the remaining Rs 1.8 lakh is added to your taxable income.
Example 2: Rs 9 lakh corpus, age 60 (non-government). You can take up to Rs 6 lakh as a lump sum. The remaining Rs 3 lakh goes into an annuity or SUR. The tax-free part is 60% of the corpus, which is Rs 5.4 lakh.
Example 3: Rs 25 lakh corpus, age 60 (non-government). You can take up to 80% (Rs 20 lakh) as a lump sum, and at least 20% (Rs 5 lakh) must go into an annuity. The tax-free part is 60% (Rs 15 lakh), and the extra Rs 5 lakh of the lump sum is taxed as per your slab.
What Should You Do Now?
First, check your NPS corpus and your account type. You can see your corpus and PRAN status on the eNPS portal (enps.nsdl.com), the UMANG app, or through your CRA. If you are near 60, plan as per the new slabs: how much lump sum to take and how much to keep for annuity.
If you want to take money in instalments through RIS or SLW, first ask your CRA whether the facility is live. Do not decide tax matters alone; if the amount is large, take advice from a CA once. And most importantly, do not exit early only because the rules have become easier. The purpose of NPS is regular income in old age; the lump sum is only one part of it.
Frequently Asked Questions
Q1. Can I really stay invested in NPS till 85?
Yes. Under the new rules, you can stay invested in NPS till the age of 85, keep contributing, or continue invested without contributing.
Q2. Is the full withdrawal up to Rs 8 lakh tax-free?
You can withdraw the full amount, but only 60% of it is tax-free. The rest is added to your taxable income.
Q3. Will everyone get the 80% lump sum?
No. The 80% lump sum is only for non-government (private and self-employed) account holders with a corpus above Rs 12 lakh. Government employees follow the 60% lump sum and 40% annuity rule.
Q4. How many times can I take a partial withdrawal?
A maximum of 3 times during your entire NPS tenure, starting 3 years after joining. Each time you can withdraw up to 25% of your own contributions, and there is no minimum gap between withdrawals.
Q5. Can I join NPS at the age of 70?
Yes, the maximum joining age is now 70 years. Those who join after 60 have no vesting period condition.
Q6. When will the Retirement Income Scheme (RIS) be available?
PFRDA announced it on 15 May 2026. It will start once the CRAs have their systems ready. Check with your CRA (NSDL or KFintech) before planning around it.
Official Links
PFRDA (Pension Fund Regulatory and Development Authority) – pfrda.org.in | NPS Trust – npstrust.org.in | eNPS (NSDL) – enps.nsdl.com | Income Tax (80CCD benefits) – incometax.gov.in
GramSuvidha is a private information portal, not a government website. The information in this article is based on PFRDA circulars and reputed sources; rules can change, so please confirm from the official source before taking any decision.
