The NPS is a voluntary contribution retirement scheme.
New Delhi: Aiming to encourage more people to opt for the National Pension System (NPS), the retirement fund corpus created by the Centre, the Union Budget has offered tax exemption on partial withdrawal not exceeding 25 per cent of the contribution made by an employee, specified under the Pension Fund Regulatory and Development Authority Act, 2013.
The relief will be provided by amending Section 10 of the I-T Act, 1961. According to section 10(12A) of the Act, tax exemption is provided to an employee in case he or she opts out of it or closes the fund, on up to 40 per cent of the total amount payable to him or her. The amendment will however come into effect from April 1, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.
The NPS is a voluntary contribution retirement scheme. It enables systematic savings during the subscriber’s working life and aims to find a sustainable solution to provide enough retirement income to every Indian citizen.
The Income Tax Act, 1961, provides that payments from the NPS to a subscriber on closure of his account or opting out shall be exempt up to 40 per cent of the total corpus at the time of withdrawal.
According to existing provisions of the Act, the amount utilised for the purchase of annuity is also exempted from tax. At the time of normal exit, 40 per cent of the total corpus is mandatorily required to be purchased for annuity. The subscriber has the option to use higher amount for purchase of annuity.
In another proposal, the Budget proposed that contribution of up to 20 per cent of gross income of the self-employed individual, other than salaried class, will be deductible from the taxable income, as against 10 per cent earlier.
“This is to provide a parity between a salaried and a self-employed person. This benefit will be available on contribution made by the self-employed persons on or after April 1,” it said.
This increased limit for tax benefit will help self-employed individuals to save taxes on higher contribution in NPS and thereby properly plan for their old-age income security, it added. This proposal too will be applicable from April 1, 2018, onwards.