In Budget 2018, Finance Minister Arun Jaitley has proposed an extension to the benefit of tax-free withdrawal from NPS (National Pension System) to non-employee subscribers. 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. This exemption is not available to non-employee subscribers. "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. (Also read: NPS, PMVVY, PPF or Senior Citizen Savings Scheme (SCSS): Which one to invest in?)
NPS offers two types of accounts: Tier I and Tier II. The Tier 1 account is non-withdrawable till the person reaches the age of 60 years. Partial withdrawal before that is allowed in specific cases. A Tier II NPS account is just like a savings account wherein subscribers are free to withdraw the money as and whenever they require.
(Also read: Public Provident Fund (PPF) Accounts To Offer More Benefits: 10 Points)
Recently, pension regulator PFRDA (Pension Fund Regulatory and Development Authority) eased rules for partial withdrawal from NPS. According to the latest rules, an NPS subscriber having completed three years in the scheme is eligible for a partial withdrawal. Partial withdrawals from the NPS kitty were earlier allowed only after 10 years of joining the pension system. (Also read: Latest NPS partial withdrawal rules explained)
NPS withdrawal - income tax rules
According to the current tax laws, withdrawals from the NPS are tax exempt if the subscriber withdraws up to 40 per cent of the corpus on attaining the age of 60 years. Also, up to 60 per cent of the maturity corpus can be withdrawn as lump sum at the age of 60 years. The remaining amount has to be converted into annuity. If the subscriber exits NPS before 60 years of age, only up to 20 per cent of the corpus can be withdrawn and the rest is converted to annuity.
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