June 26, 2025
4 mins read
The National Pension Scheme (NPS) is a government-backed retirement savings plan. You invest regularly during your working years, and the money grows over time. At retirement, you get a mix of lump sum and regular income. The scheme helps you build financial security for your post-retirement life.
Now, let’s talk about the NPS lock-in period. This is the time during which you cannot fully withdraw your invested money. The lock-in lasts until you turn 60. However, there are exceptions where you can withdraw a portion of your contributions after three years. These partial withdrawals are allowed only for specific reasons like medical treatment, higher education, building or buying a house, or skill development. You can withdraw up to 25% of your own contributions, and you can do this up to three times during your investment journey.
The NPS lock-in period helps your money stay invested longer, so your retirement fund grows steadily and supports you when you stop earning.
The NPS lock-in period serves an important purpose. It helps you save regularly, keeps your focus on retirement, and prevents early spending.
Due to the long lock-in period, you continue saving without the temptation to spend early. This helps you stay focused on your long-term retirement goals.
After three years, you can withdraw up to 25% of your personal contribution. This is allowed for medical emergencies, education, house construction or purchase, and skill development. You can do this up to three times.
You develop a habit of investing consistently. Regular contributions build your corpus steadily over time, especially during the NPS lock-in period.
Investments made during the NPS lock-in period qualify for tax deductions under multiple sections like 80C and 80CCD(1B). This helps lower your tax burden while growing your savings.
Your funds are invested in both equity and debt markets. Over time, this market exposure helps your savings grow and keeps pace with inflation.
You receive multiple tax benefits while investing in the National Pension Scheme during the NPS lock-in period:
You can claim a tax deduction on your personal NPS contributions. The deduction is limited to 10% of your salary (Basic + Dearness Allowance). This amount falls within the overall ₹1.5 lakh ceiling under Section 80CCE, which includes other eligible investments.
Your employer’s contribution to your NPS account also qualifies for tax deduction. The employer can contribute up to 10% of your Basic + DA. There is no upper monetary limit on the employer’s side. This deduction is available over and above the ₹1.5 lakh limit under Section 80CCE.
You can make voluntary contributions to your NPS Tier I account and claim an additional tax deduction up to ₹50,000. This deduction is available in addition to the limits under Section 80C and 80CCD (1). This extra benefit encourages more savings during the NPS lock-in period.
Using an NPS calculator can help you estimate how much tax you save and plan your investments accordingly.
At the end of the NPS lock-in period, when you turn 60, you can withdraw 60% of your total accumulated amount as a lump sum. This amount is fully tax-free. The remaining 40% must be used to buy an annuity from a PFRDA-registered provider.
An annuity provides you with regular monthly income after retirement. You cannot withdraw or sell the annuity amount as a lump sum. This National Pension Scheme rule ensures you have a steady income stream once you retire.
While the NPS lock-in period is strict, certain exceptions allow for partial or early withdrawal.
If you leave the National Pension Scheme before turning 60 but after five years of continuous participation, you can withdraw 20% of your total corpus as a lump sum. The remaining 80% must be used to purchase an annuity.
Once you reach 60, you can withdraw 60% of your savings as a lump sum. The remaining 40% is used to buy an annuity, which gives you regular income during retirement.
Before you invest in the National Pension Scheme, it helps to understand some key terms related to the NPS lock-in period:
A 12-digit number issued when you open your National Pension Scheme account.
This is your main retirement account. It comes with the NPS lock-in period and withdrawal restrictions. You must invest at least ₹1,000 each year to keep it active. Each deposit must be at least ₹500.
This is optional and more flexible. You can withdraw anytime. However, Tier 2 accounts do not provide tax benefits.
You decide how much of your money goes into equity, government securities, and other funds.
The system allocates funds based on your age and risk profile. Younger investors have higher equity exposure, which reduces as you get older.
You can change your Pension Fund Manager once a year and your investment option up to four times a year. The NPS lock-in period ensures that your savings grow steadily while still giving you some flexibility. An NPS calculator helps you estimate your future corpus and plan your contributions throughout the NPS lock-in period.
The NPS lock-in period plays a key role in building your retirement savings. It encourages long-term planning, provides tax benefits, and allows limited withdrawals when needed. Once the lock-in period ends, you get both a lump sum and regular income through annuity. You can use tools like the NPS calculator to plan better and stay on track. By staying disciplined during the NPS lock-in period, you can secure your financial future after retirement.
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In Tier 1, your funds are locked in until you turn 60. That means you can’t take out your entire corpus before that age. This rule is in place to ensure the money is used strictly for retirement. However, you’re allowed partial withdrawals under specific circumstances, and there are also defined exit options before 60 if you meet certain conditions.
Yes, but only under specific conditions. After completing three years in the scheme, you can withdraw up to 25% of your own contributions. This isn’t a one-time opportunity—you can do it up to three times during your subscription. But keep in mind, these withdrawals are allowed only for specific needs like medical treatment, buying a house, or funding education.
If you want to exit before reaching 60, you need to be in the scheme for at least five years. In this case, you can withdraw 20% of the corpus as a lump sum. The remaining 80% must be used to buy an annuity that gives you regular income. Premature exit is allowed, but it comes with conditions to keep the retirement purpose intact.
The difference is quite simple. Tier 1 is your retirement account with a strict lock-in until age 60. Withdrawals are limited and regulated. On the other hand, Tier 2 is like a regular investment account. There’s no lock-in, and you can withdraw your money anytime. However, Tier 2 doesn’t offer the same tax benefits as Tier 1.
Absolutely. Contributions to NPS are eligible for deductions under Section 80C (up to ₹1.5 lakh) and an additional ₹50,000 under Section 80CCD(1B). Your employer’s contributions under Section 80CCD(2) also offer tax advantages. And at maturity, 60% of your corpus is tax-free. These benefits make sticking with the lock-in worthwhile.
Partial withdrawals are allowed after three years for specific purposes. Also, if you need to exit early (before 60), and you’ve been a subscriber for at least five years, you can do so under the premature exit rule. These are the main exceptions to the lock-in period.
The lock-in period forces you to stay invested for the long term. This builds discipline and helps your retirement fund grow steadily. You’re not tempted to withdraw the money on impulse, and by the time you retire, you have a well-grown fund that supports your post-retirement life.
Yes, if you are self-employed and have contributed for at least five years, you can opt for premature exit. Just like salaried subscribers, you’ll be allowed to withdraw 20% as a lump sum and must use the remaining 80% to buy an annuity.
If you try to exit before completing three years, you’re not eligible for partial withdrawal. Even after three years, the amount you can take out is limited to 25% of your contribution and only for valid reasons. You can’t withdraw the full corpus unless you’ve reached the age of 60 (or qualify under the premature exit terms).
Yes, the rules around the NPS lock-in period apply to both Indian residents and NRIs. Both groups follow the same age-based restrictions, withdrawal conditions, and tax rules.
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