Efficient Pension Withdrawal in India: Steps and Tips for Retirees

Pension funds are crucial in most retiree’s golden years because they’re their biggest financial stability tools. However, accessing pension funds can be overwhelming for those who don’t have a clear understanding of pension withdrawal rules. If you aren’t well-versed in financial matters, you might be nervous that your pension withdrawal could be delayed for numerous reasons. Another reason why prior knowledge is helpful is the impact of taxation. Withdrawing large pension amounts without proper planning will push you into higher tax brackets, significantly reducing the net amount after deducting the tax liability. 

This can make you financially vulnerable, especially during medical emergencies or other unexpected times when your expenses are running high. If you are a retiree, senior citizen or someone who is approaching your retirement timeline, this blog is for you. We explain how to withdraw pension contributions, along with tips to manage the received pension amount and be more aware of your tax liability. 

Understand the Types of Retirement Plans in India

There are various retirement plans in India, each with unique rules and tax implications. Having a clear understanding of these plans can ease the pension withdrawal rules. Currently, India has the following common plans:

• National Pension Scheme (NPS)

This market-linked voluntary investment scheme enables all Indian citizens to build a retirement fund by investing in a pension account during work-life years. People investing in these retirement fund schemes must use at least 40% of their funds to buy an annuity plan during retirement, and the remaining corpus amount can be withdrawn as a lump sum. 

NPS typically allows partial withdrawal of up to 25% on contributions, provided you’re an NPS subscriber for at least three years. Retirees can enjoy tax benefits on NPS u/s 80CCD (1) of up to ₹1.5 lakh, 80CCD (1b) of ₹50,000, and 80CCD (2) of 10% of basic salary + DA contributed by the employer. No tax benefits are available for NPS tier 2 and annuity payments.

• Employee Provident Fund (EPF)

This mandatory savings scheme helps employees create a retirement fund during their active working years. The best part about EPF is that employees can get full pension withdrawal upon retirement. You can also make partial withdrawals before retirement to fund medical emergencies or pay for other expenses such as house purchase/construction and higher studies. 

Withdrawing EPF before retirement will attract tax implications for employees with less than five years of service. Additionally, no one can withdraw the employer’s contribution and interest before five years of service. An employee’s contribution to EPF can be used to claim a deduction u/s 80C. We recommend withdrawing EPF after five years of continuous service, as it will attract zero tax on pension, including the interest earned. 

• Public Provident Fund (PPF)

It is a long-term savings scheme that can be opened in any Indian bank or post office. Since PPF typically matures after fifteen years, you must reserve this pension money strictly for your retirement years and avoid partial withdrawals before retirement for optimal benefit. While the full PPF amount can be withdrawn on maturity, people have the option of partial withdrawal from the seventh year onwards.

If you choose partial withdrawal, you can only withdraw 50% of your account balance at the end of the fourth year. The best part about PPF is that it qualifies for the Exempt-Exempt-Exempt (EEE) status. It is a tax category that levies zero tax on your investment, interest earned on investment, and maturity amount. Your PPF contribution can be deducted u/s 80C, up to ₹1.5 lakh (maximum). The PPF maturity proceeds and its interest are fully tax-free.   

• Annuity Plans from Insurance Providers

Many people prefer investing in annuity plans because they provide regular income post-retirement. Since there are different annuity plans, like deferred, immediate, fixed, variable, etc., the withdrawal rules and tax implications vary significantly for each annuity retirement plan in India. We recommend reading the ‘terms and conditions’ of your chosen annuity plan for accurate information.

Withdrawal Scenarios: Retirement, Early Exit, Job Loss, or Death

When someone works at a job, they save part of their money in the bank for retirement. As per pension withdrawal rules, here are 4 scenarios where the money can be accessed:

• Retirement - When a person retires at the age of 58, they can access the money saved in the bank. They will receive small amounts of money every month for their spending.
• Early Retirement—If a person has worked for 10 years but wishes to leave early, they can still avail themselves to get the money but in smaller amounts every month from form (10D).
• If they worked less than 10 years, they get all the money at once from Form 10C. If you are wondering how to withdraw pension contributions, this depends on your years of service and age.
• Lost Job—If a person loses their job and has been jobless for 2 months but worked for 10 years, they can take their money out (Form 10C)
• Death—In this case, in the circumstances that the subscriber passes away, nominees can withdraw the full corpus if it's 5 lakhs or less. For amounts above 5 lakh or less, 80% of it must be used to buy an annuity. The remaining 20% is a lump sum that, if no dependents are alive, goes to the children or legal heirs.

Choose the Right Withdrawal Option

There are various withdrawal options to get your pension money after retirement. The three most common options are shared below:

Lump-Sum Withdrawal

The lump-sum withdrawal typically refers to the withdrawal of a full or major portion of the corpus. If you choose lump-sum withdrawal, there won’t be any tax on pension for PPF and EPF (if you’ve finished five years of continuous service). Tax won’t be applied on up to 60% of the corpus withdrawn in NPS. 

Annuity plans typically don’t allow lump-sum withdrawals, but if you receive one, it will be taxed according to your income tax slab. This withdrawal method is perfect if you need instant access to funds to meet larger expenses. It is a straightforward process, but it may lead to premature depletion of funds.   

Systematic Withdrawal Plans (SWP)

This withdrawal method is recommended for retirees who want to continue receiving a steady income without burning the entire retirement funds in a short period. Retirement plans in India, like NPS, EPF, and PPF, generally don’t provide an SWP option, but annuity plans do. Depending on your selected payment frequency, they will continue crediting a specific amount for a fixed period. All annuity payments are taxed as regular income, so ensure you set a lower withdrawal amount to reduce tax liabilities. 

Purchase an Annuity

Many retirees convert a portion of their pension money into annuity plans to continue receiving a predictable and steady income for a fixed period. You can use a retirement calculator to decide the ideal annuity plan and amount. While these are convenient for many retirees, all annuity proceeds are taxed as regular income, meaning you don’t get any benefit of saving tax on pension money.

Step-by-Step Pension Withdrawal Process (Online & Offline)

If you’re wondering how to withdraw pension contributions online, here’s a simple guide:

How to Withdraw  Pension Contribution Online

1. Use UAN or PRAN to access the EPFO or NPS portal.
2. Choose the relevant withdrawal form (NPS exit or Form 10C).
3. Check your bank information and use an OTP to authenticate.
4. Select the withdrawal type and attach supporting documentation.
5. Send in and monitor your online request. 

How to Withdraw  Pension Contribution Offline 

1. Visit your nearest EPFO office or NPS PoP.
2. Fill out the required forms as per pension withdrawal rules.
3. Submit with Aadhaar, PAN, and bank proof.
4. Wait 10–15 days for processing.

Now you know how to withdraw pension contributions with ease—choose what suits you best.

Required Documents For Pension Withdrawal 

1. Address proof—A valid address proof showing your current residential address.
2. Composite claim form—required if applying offline.
3. Bank account statement—A recent statement in the name of the EPF account holder.
4. Cancelled cheque or passbook copy—to verify the correct bank account details.
5. Identity proof details—Personal info like place of birth and father's name, and it should match your ID proof.
6. UAN activation—Your universal account number should be active. 
7. KYC compliance - KYC Know your customer details, like PAN, Aadhar card and bank account, which should be linked and verified to your UAN.

Having the correct documents ready makes the process smoother for anyone learning how to withdraw pension contributions from their EPF account. 

Understand the Tax Implications in India

Different pension fund withdrawals have different tax implications in India. It can be broadly categorised into the following sections:

Tax-free Portion

Pension withdrawal of the NPS lump sum amount and partial withdrawals (up to 25% of the contributor’s share) are tax-free. The entire withdrawal amount from EPF and PPF is also tax-free.   

Tax on Annuity Payouts

While annuity payouts are generally taxed according to the individual’s income tax slab, certain plans provide tax-free payouts under specific conditions. The tax on pension in annuity payouts will depend on the plan you’ve chosen, so review its terms and conditions for accurate and plan-specific tax implications. 

If you want to lower your tax liability, then withdraw pension funds in smaller portions. You can calculate and plan your withdrawals by using our income tax calculator page for maximum savings. Additionally, you can also benefit by investing in tax-free options.

Plan for Financial Security After Withdrawal

Once you’ve received the full pension funds, avoid impulse spending to maintain financial stability. If it’s your only source of income in the retirement phase, we recommend budgeting for regular expenses, medical needs, and unexpected costs. Consider investing in annuity plans so you only receive fixed retirement funds every month to prevent overspending. You can also explore better retirement plans listed on our website. 

Navigate Your Pension Journey with Shriram Life Insurance 

Pension becomes the primary income source for many senior citizens in their retirement phase, but getting it isn’t as easy. There are different retirement plans in India, each with varying withdrawal rules, tax implications, and financial security. Not being aware of these details can result in delayed withdrawals and unwanted financial strain. However, you can avoid such challenges by following the pension withdrawal rules and tips discussed in this article.

Shriram Life Insurance provides retirement plans such as Shriram Life Immediate Annuity Plus that can help you secure your financial future along with Pension benefits. These policies provide a safety net for your golden years, ensuring stability and peace of mind. By planning ahead, you can not only protect yourself from unexpected challenges but also achieve your retirement goals and enjoy a fulfilling and worry-free life.