NPS withdrawal made at par tax free to PPF, EPF
The Cabinet has approved changes to National Pension Scheme or NPS which will make the pension plan at par with other schemes like PPF and EPF. The government granted NPS exempt, exempt and exempt or EEE status, which means that like PPF (public provident fund) or EPF (employee provident fund) investment at the investment stage, accumulation and withdrawal stage will be tax free. Earlier, NPS only enjoyed exempt, exempt and taxable or EET status, meaning that on withdrawal NPS was partially taxable. These changes were approved by the Cabinet in its December 6 meeting but their announcement was delayed due to state elections.
NPS on withdrawal will now totally tax exempt. Under the existing provisions of clause (12A) of section 10 of the Act, an employee contributing to the NPS is allowed an exemption in respect of 40 percent of the total amount payable to him on closure of his account or on his opting out. This exemption is not available to non-employee subscribers. Now, the whole 60% of the accumulated corpus will be tax free, bringing it on a par with other investment schemes like PPF and EPF.
These changes in tax rules on NPS withdrawal will apply to all subscribers, including government employees.
This brings it on a par with other schemes such as EPF and PPF. NPS offers two types of accounts to its subscribers. The Tier I account is non-withdraw able till the subscriber reaches the age of 60. Partial withdrawal before that is allowed in specific cases. In another tax benefit for NPS subscribers, contribution under Tier-II of NPS will now be covered under Section 80C for deduction up to Rs. 1.50 lakh for the purpose of income tax benefits, provided there is a lock-in period of three years. The Tier II account is a voluntary savings account and subscribers can withdraw their money from it whenever they want.
Now as per changed rule, the government has decided to increase its contribution to the NPS for central government employees 14% of their basic pay as compared to 10% earlier. This move will benefit 18 lakh central government employees. The central government employee’s contribution will remain changed at 10% of the basic pay. This will increase the accumulated corpus of all central government employees covered under NPS eventually give them greater pension payouts after retirement without any additional burden.
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