What are tax benefits of NPS (National Pension Scheme) or Please explain taxability of withdrawal of NPS.

Question BankCategory: Income TaxWhat are tax benefits of NPS (National Pension Scheme) or Please explain taxability of withdrawal of NPS.
S. Ambu asked 1 month ago

What are tax benefits of NPS (National Pension Scheme) . Please explain taxability and exemption of withdrawal of NPS. 

1 Answers
sky Staff answered 1 month ago

(A) Taxability of NPS contribution :-
Tax Benefit available to Individual:
Any individual who is Subscriber of NPS can claim tax benefit under Sec 80 CCD (1) for his contribution (lower of amount contributed or 10% of salary in case of employees otherwise 20% of gross total income.)  to NPS ,with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE.
Exclusive Tax Benefit to all NPS Subscribers u/s 80CCD (1B)
An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers for contribution made to NPS under sub-section 80CCD (1B). This is over and above the deduction of Rs. 1.5 lakh available under section 80C of Income Tax Act. 1961. Hence including 80CCD(1) & 80CCD(1B), a subscriber can claim a deduction upto Rs. 200000/- for his contribution to NPS.
Tax Benefits under the Corporate Sector:

  1. Corporate Subscriber:
    Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD (2) of Income Tax Act. Employer’s NPS contribution (for the benefit of employee) is once added to  salary income income and a sum up to 10% of salary (Basic + DA), is deductible from taxable income, without any monetary limit. (14% in case of central government employee)
  2. Corporates
    Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account.

(B ) Taxability of NPS Withdrawn :-

  1. Tax benefits on partial withdrawal:
    Subscriber can partially withdraw from NPS tier I account before the age of 60 for specified purposes. According to Budget 2017, amount withdrawn up to 25 per cent of Subscriber contribution is exempt from tax.
  2. Tax benefit on Annuity purchase:
    Amount invested in purchase of Annuity, is fully exempt from tax. However, annuity income that you receive in the subsequent years will be subject to income tax.
  3. Tax benefit on lump sum withdrawal:
    Subscriber cannot withdraw the entire corpus of the NPS scheme after his retirement. You are compulsorily required to keep aside at least 40% of the corpus to receive a regular pension from Insurance firm. Hence Subscriber can withdraw 60% of corpus in lump sum which is made fully exempt by budget 2020.  Earlier to Budget 2020, this exemption was only upto 40% which is now increased to 60%.

 

 

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