In a notice dated 28 December 2021, National Pension System (NPS) members who do not have an employer-employee connection are free to leave NPS after completing an initial lock-in period of 5 years instead of 10.

New Delhi: If you are self-employed or don’t have an employer-employee connection like those on fixed-term or fixed-term contracts. There is some positive news for you from PFRDA. ET announced that the Pension Fund Regulatory and Development Authority (PFRDA) had cut the lock-in time of NPS investment from 10 years to five years for self-employed persons and other people who don’t have employers-employee relations, such as those with fixed-term contracts.

According to a statement published on 28 December 2021, National Pension System (NPS) subscribers who don’t have an employer-employee connection can opt-out of NPS after completing a lock-out period that is 5 years rather than the earlier 10 years.

There’s a twist: the lower lock-in doesn’t apply to salaried people investing in NPS. On this subject, Saraswathi Kasturirangan, Partner, Deloitte India, says, “One needs to know that only NPS accounts can be allowed to have lower lock-in periods of five years when there isn’t an employer-employee partnership. This means that salaried employees are non-eligible to a shorter lock-in time. This applies to self-employed persons or fixed-term employees and consultants who have quit their previous employer.”

NPS has a very long lock in period but the additional tax benefits it offers are very beneficial for high income earners.

In the notice, “In first para of sub-regulation (b) of Regulation 4 “voluntarily decides to leave National Pension System,” the decision to exercise that option will be permitted only upon such subscriber being a member of National Pension System for 10 years. If such a subscriber” and”if a subscriber “or subscriber who does not have any employment relationship with an employer who has subscribed to the National Pension System for at 5 years, and voluntarily chooses to withdraw from the National Pension System, then” is substituted.”

Kasturirangan states: “The existing Regulation 4 (b) of the PFRDA (Exits and withdrawals under the NPS Regulations) covers the possibility of leaving NPS by individuals, which includes corporate sector subscribers before reaching the retirement age. It stipulates that when an NPS subscriber chooses to leave NPS before reaching the superannuation age/60 years (as required by the regulations), the subscriber will be allowed to leave after having remained with NPS for at least 10 years. The regulation mentioned above has been modified by a recent Gazette Notification that was published on 28 December 2021, which provides that should an NPS subscriber who is not in an employer-employee partnership decides to leave NPS before reaching the age of superannuation, 60 years (as stipulated) the subscriber will be permitted to do so once he has been investing in NPS for at least five years.”

What is the process of withdrawal?

Suppose a person has the right to apply and decides to leave an NPS scheme. In this case, they will be obliged to utilize 80percent of the amount to purchase an annuity. The remaining 20 percent will be paid out as an unintentional lump amount. But, according to a gazette notice in June 2021, If the lump sum accumulated on the NPS account is not more than five lakh rupees, the entire amount can be withdrawn without the need to buy an annuity.

Kasturirangan states, “If an individual decides to leave the NPS scheme following the expiry of five years and the total amount is not more than Rs 5 lakh, the entire balance may be taken out as lump sum.”

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