TAX EXEMPTION ON PARTIAL WITHDRAWAL FROM NATIONAL PENSION SCHEME AND INCREASE IN THE DEDUCTIBLE AMOUNT FOR SELF EMPLOYED u/s 80CCD

Partial Withdrawal of NPS

In a bid to provide further impetus to the investments made in the National Pension Scheme, the following provisions have been introduced in the Finance Bill 2017.

The provision of Section 10(12A) of the Income Tax Act, provides that 40% of the total corpus will be exempt at the time of withdrawal, only if the withdrawal is due to the closure of his account or opting out of the pension scheme.

The Finance Act, 2017 has added clause (12B) to section 10 (with effect from 01-04-2018), which exempts any partial withdrawal made by an employee from his account provided that:

  • The amount is withdrawn in accordance with terms and conditions, specified under Pension Fund Regulatory and Development Authority Act, 2013, and

  • The amount does not exceed 25% of the total amount of contributions made by the employee

Increase in deductible amount

The deduction under section 80CCD is given to salaried and other individuals for their investment in National Pension Scheme.

The Deduction for investment in NPS is as follows:

  • Under section 80CCD (1) - a salaried individual/self- employed individual can claim deduction, lower of 10% of salary or Rs 1,50,000 for the contribution made by employee/self-employed individual himself.

  • Under section 80CCD (2) - a salaried individual can claim deduction up to 10% of salary for the contribution made by his employer.

By this, salaried individuals are eligible for 20% deduction for NPS contribution. To bring parity between salaried individuals and self-employed individuals, Govt has increased the limit of tax benefit for self-employed individuals to 20% of salary in Finance Act 2017, to save taxes on higher contribution in NPS.

Additional tax deduction on investment up to Rs. 50000/- under Section 80CCD (1B) will continue to remain the same for all NPS subscribers whether salaried or self-employed.

Disclaimer:"The information contained herein is only for informational purpose and should not be considered for any particular instance or individual or entity. We have obtained information from publicly available sources, there can be no guarantee that such information is accurate as of the date it is received or it will continue to be accurate in future. No one should act on such information without obtaining professional advice after thorough examination of particular situation."

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