NPS After Death: Withdrawal Rules, Tax Benefits & Annuity Options for Nominees

NPS Annuity After Death – What Happens to the Corpus?

Question:

“If an NPS subscriber dies, what happens to the accumulated amount? Will the nominee/legal heir get the full 100% corpus or is it compulsory to buy annuity? Also, is the amount received tax-free?”

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Answer:

As per PFRDA (Exits & Withdrawals under NPS) Regulations, 2015 & amendments, the rules differ slightly depending on the type of NPS account. Let’s break it down:

✅ For Subscribers from Government Sector:

• If the accumulated corpus is up to ₹5 lakhs, the entire amount is paid as a lump sum to the nominee/legal heir.

• If the accumulated corpus is more than ₹5 lakhs, then:

  • 80% of the corpus must be used to purchase a default annuity from an Annuity Service Provider (ASP).

  • 20% of the corpus can be withdrawn as a lump sum.

✅ For Subscribers from All Citizen & Corporate Sector:

• In case of death, 100% of the accumulated corpus is payable to the nominee/legal heir as a lump sum.

• This entire amount is exempt from tax in the hands of the nominee/legal heir.

• The nominee/legal heir also has the option to purchase an annuity (pension) if they wish.

✅ If the Subscriber had Deferred Annuity Purchase:

• Even in such cases, on the death of the subscriber, the full accumulated corpus is paid to the nominee/legal heir, tax-free.

• Again, nominees can choose to buy annuity if they want regular pension income.

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📌 Documents Required by Nominee/Legal Heir:

• Death Certificate of subscriber

• KYC documents (Identity & Address Proof)

• Bank account proof

• Death Withdrawal Form (available on CRA/NPS website)

Withdrawal form needs to be submitted by each nominee/claimant separately.

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💡 In short:

• Government Sector – Rules of 80:20 apply if corpus > ₹5 lakhs.

• All Citizen & Corporate Sector – Nominee/legal heir gets 100% tax-free lump sum (with option to buy annuity).

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