- A new long-term capital gains tax has been imposed on equity investments
- Tier I NPS account will not be impacted by it: An official said
- Tier-I account is a non-withdrawable he or she reaches the age of 60 year
10 Things To Know About Impact of LTCG Tax On NPS:
1) The Tier-II account is a "voluntary withdrawable" account, just like a savings account wherein subscribers are free to withdraw the money as and whenever they require. There are no restrictions on withdrawal from the Tier II NPS account. A customer can have the option to open a Tier II account only when he or she holds an active Tier I account.
2) Hemant G Contractor, chairman of pension regulatory body PFRDA, said the proposal of long-term capital gains tax will not have much impact on NPS. "It does not have much impact on us. The investments in National Pension System are made by our trust (NPS Trust) which is a tax exempted body. As far as pension investments are concerned, LTCG will not have impact," he said.
3) Withdrawals from a Tier 1 NPS account can be made only upon meeting the exit conditions prescribed under NPS.
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4) However, the new long-term capital gains tax will have an impact on the Tier II account, also known as a non-pension account, Mr Contractor said.
5) "Tier II has no tax benefits. Tier II account would be impacted but investments corpus in tier II is much smaller," he said.
6) NPS offers subscribers the option to realign their investment in different asset classes like equity, corporate bonds and government securities. Investors have the option of choosing different pension fund managers and investment options for their NPS Tier I and Tier II accounts.
8) Under the current income tax rules, an employee contributing to the NPS is allowed an exemption in respect of 40 per cent of the total amount payable to him or her on closure of account or on opting out.
9) This exemption is not available to non-employee subscribers.
10) "In order to provide a level playing field, it is proposed to amend clause (12A) of section 10 of the Act to extend the said benefit to all subscribers," according to the Finance Bill, 2018. The extension of tax-free withdrawal to non-employee subscribers will be available from financial year 2018-19.
(With agency inputs)