The NPS 40% annuity rule is no longer the private-sector rule

What exactly changed about NPS exits?

One instrument did all of it: the Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) (Amendment) Regulations, 2025, made under section 52(1) read with clauses (g), (h) and (i) of section 52(2) of the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013), amending the Pension Fund Regulatory and Development Authority (Exits and Withdrawals under the National Pension System) Regulations, 2015. It reached regulations 2, 3, 4, 5B, 6 and 8 of that instrument — the definitions, the two sectors, the subscriber who cannot be found, the restriction on assigning benefits, and partial withdrawals — and added a Schedule setting out every route as a grid.

Below is every exit this site can state, before and after, with the regulation that fixes it. Each row is one balance being divided two ways: the part that has to buy a monthly pension, and the part you can put in your bank account.

Is the 40% annuity rule dead?

Only for some people. It is still the floor on a government-sector normal exit, under regulation 3(1)(a), and the amendment left that untouched on purpose — the Ministry of Finance describes the changes as “The amendments are primarily aimed at the non-government sector (All Citizen Model and Corporate Sector), applicable uniformly to both Common Schemes and the Multiple Scheme Framework (MSF), while also rationalizing certain provisions for the government sector.”

So the sentence that is true of you depends on who employs you, and every page that reports this as a single national change is wrong for roughly half its readers. It is also why the table above carries both sectors rather than the interesting one.

What does it mean if I am retiring?

Worked on ₹12,00,000, which is not a number we picked: it is the threshold above which the plain rule is the whole answer, with none of the small-balance options in play. It is the smallest balance at which the change is the only thing deciding the split.

₹2,40,000 that could only ever have become a monthly pension can now be taken as money instead. Whether that is good news is not a question this site will answer for you: an annuity is insurance against living a long time, and what the amendment removed is an obligation, not a risk. What it does mean is that anyone who planned around 40% has more room than they think, and anyone told 40% at any point since 16 December 2025 was told something that had already stopped being true.

What does it mean if I am leaving early?

Less than you might hope, and more than you might expect. The split did not move: at least 80% still has to buy an annuity if you leave before you are eligible for a normal exit, under regulation 4(1)(b). Two other things did move, and for a smaller account they matter more than the split does.

• The whole-balance threshold doubled, from ₹2,50,000 to ₹5,00,000. Below it you take everything in cash. Above it, 80% of it buys a pension — which on a balance near the threshold is a genuinely small monthly amount, and is the reason the threshold exists.
• The wait before you may leave early is gone. The All Citizen Model used to require five years of subscription first. And a normal exit — the good one, on the 20% floor — now arrives at fifteen years of subscription or at sixty, whichever is earlier, so someone who opened an account young may reach it well before sixty.

What else changed?

The percentages are the headline; they are not most of the instrument. These are the changes a subscriber is most likely to be affected by, each with the regulation it sits in and our grade for it.

How much of the lump sum is tax-free?

A different instrument answers this, and it did not move on the same day. Under Income-tax Act 2025, s.11 read with Schedule II (Table, Sl. No. 6) (the erstwhile 10(12A)) the amount payable on closing the account is exempt up to 60%. A partial withdrawal is exempt up to 25% of your own contributions under Income-tax Act 2025, s.11 read with Schedule III (Table, Sl. No. 4) (the erstwhile 10(12B)).

Which leaves a gap the amendment opened and nothing we have read has closed. The regulations now permit 80% in cash; the exemption stops at 60%. On the balance worked above, that is ₹2,40,000 a private-sector subscriber may now take, sitting outside the words of the exemption. We have not found a notification, a circular or a clarification that addresses it. We do not know how it is treated, and we are not going to reason our way to an answer somebody might act on. If you are near an exit, this is the question to take to somebody qualified.

One more line on that page belongs here rather than among the quotations below, because it is about this instrument rather than about the exit rules. The same page states the tax incentives under the Income-tax Act, 1961, which was repealed with effect from 1 April 2026 — a different instrument from the exit regulations, and a point our section mapper already answers, so it is stated here in our own words rather than reprinted. The page is linked in full on the department’s site.

Why does a government page still say 40%?

Because nothing makes it stop. The exit rules are the regulator’s: the Pension Fund Regulatory and Development Authority makes them under its own Act. The page below belongs to the Department of Financial Services, which administers pension policy and publishes an explainer of the scheme. When the regulator amends the regulations, no rule of law edits the explainer, and no alarm goes off.

We read that page in full on 10 August 2026. It carried the figures below, and it states in its own footer that it was last updated on 6 January 2026 — which is after the amendment, so this is a page that has been edited since the rule changed rather than one nobody has touched. These are its words, not our summary of them.

What are you still unsure about?

Published beside the claims rather than kept in a note, because a page complaining about somebody else’s confidence owes a reader its own.

• The exact day it took effect — graded medium. Three dates, and the regulations do not choose between two of them for us. The notification is signed and dated 12 December 2025. The Gazette issue carrying it is numbered 808 and dated Monday, 15 December 2025. The electronic-Gazette identifier stamped on the file is CG-DL-E-16122025-268548, which puts publication of the e-Gazette at 16 December 2025. Regulation 2 fixes commencement on 'the date of their publication in the Official Gazette' and says no more, so the commencement date is the publication date and the publication date is either the 15th or the 16th depending on which publication is meant. We date the change from 16 December 2025, the later and therefore the safer of the two, and grade that choice medium rather than assert it. Separately, the Ministry of Finance release of 19 December 2025 describes the amendments as having been notified on the day of the release itself, which agrees with neither. A press release is not the instrument, so it does not move the date; it is simply why nobody should be surprised to find 19 December in circulation as the date of the change.
• The tax on the slice between 60% and 80% — graded medium. Graded medium, and the grade is about the interaction rather than about either limb. Both exemptions are read from the 2025 Act and are on the section mapper at high. What we have not found stated anywhere is what happens to the slice between sixty and eighty per cent now that the regulations permit it: the Schedule caps the exemption at sixty per cent of the amount payable on closure and says nothing about a larger permitted lump sum, and no notification, circular or clarification we have read addresses the gap the amendment opened. We state the two ceilings and say that we do not know how the difference is treated, rather than reason our way to an answer somebody might act on.
• The five-year lock-in before an early exit is gone — graded medium. The All Citizen Model used to require five years of subscription before an early exit was even possible. The Ministry's release records the minimum lock-in period as removed. The regulations as amended carry no lock-in condition in regulation 4(1)(b), which is consistent with that, but the release states it in terms and the instrument states it by absence.
• You can borrow against the account for the first time — graded medium. A subscriber may seek financial assistance from a regulated financial institution and the lender may mark a lien or charge on the individual pension account, up to a quarter of the subscriber's own contributions — the same ceiling as a partial withdrawal. Assignment or pledge of benefits was void before this. The mechanics are left to guidelines the Authority has to issue, so what a bank will actually lend against is not settled by the regulations alone.
• Everything else on this page is a quotation. The documents are on egazette.gov.in, pib.gov.in and financialservices.gov.in — the amending notification itself, in the Gazette of India; the Ministry of Finance release describing it; the Department of Financial Services page quoted above. The Ministry’s own release says of its summary table: “The changes tabulated above are some of the broad key amendments (indicative but not exhaustive) effected in the Exit Regulations.” So do not treat our table as the whole instrument either; it is the part a salaried subscriber is affected by.

Where do I check my own numbers?

This page is about what comes out. What goes in is arithmetic, and our employer NPS calculator does it: how much of your cost to company is worth routing into the scheme under section 124 of the Income-tax Act, 2025, and the point past which routing another rupee saves no tax at all. Reading it against this page is the honest way round — the calculator tells you what routing costs you in cash in the year you route it, and these regulations tell you when you get it back and in what form.

For the tax half, our section mapper answers which section of the repealed Income-tax Act, 1961 became which section of the Income-tax Act, 2025 — including the two exemptions above, which is the answer to every page still citing the old numbers for an NPS withdrawal. What we read, when we last read it, and where we are still unsure is on the methodology page.