At 60, take NPS as lump sum or annuity?

What you can take at 60

Many subscribers still plan around the old 60 and 40 split. Since the PFRDA amendment of 16 Dec 2025, non government subscribers above ₹12 lakh can take up to 80% as a lump sum and must put at least 20% into an annuity. Taking more cash is now allowed, but it is not always the better choice.

How each part is taxed

People often take the full 80% assuming it is all exempt. Only up to 60% of the corpus is exempt. The extra 20% is added to your income in the year you take it, and annuity income is taxed every year at your slab rate. The annuity capital is not returned to you under most annuity types; it buys the income.

Lump sum or annuity: the trade off

The real question is what you need the money to do. A lump sum stays yours, can grow, and can be left to family, but its income depends on markets and on how much you withdraw. An annuity pays a fixed amount for life however long you live, but the rupee amount does not rise with inflation and you cannot get the capital back.

How to decide your split

1. List steady income such as a pension or rent, so you know the monthly gap.
2. Check your other investments. If you already hold a large invested corpus, a bigger annuity adds a stable floor.
3. Think about longevity. If your family lives long, a larger annuity covers late years.
4. Check your slab. Lump sum above 60% is taxed at your slab in the year you take it.

5. For most people the answer is a mix: about 60% lump sum and 40% annuity, adjusted for the points above.

A worked example in rupees

Ravi, 60, has ₹1 crore in NPS and annual rental income of ₹2,40,000. At an 80% lump sum, ₹60,00,000 is exempt and ₹20,00,000 is taxed at his slab; the ₹20,00,000 annuity pays about ₹10,000 to ₹11,667 a month. At a 60% lump sum, all ₹60,00,000 is exempt and the ₹40,00,000 annuity pays about ₹20,000 to ₹23,333 a month. Estimates, not predictions.

Using the lump sum

Keep one to two years of expenses in lower risk debt, and set a monthly withdrawal from the rest at a 3% to 4% withdrawal rate.

To check whether the total is enough, see whether ₹3 crore is enough to retire.

Or test your number in the FIRE calculator.

Common mistakes

• Taking 80% without noticing the extra 20% is taxed at your slab.
• Putting the whole lump sum in a deposit and ignoring inflation.
• Choosing the minimum annuity with no other steady income.
• Forgetting that annuity income is fixed in rupees for life.
• Deciding at 60 without a yearly withdrawal plan for the lump sum.