Now 40% NPS withdrawal is Tax Exempted
In the Budget of 2016, the Indian finance minister, Arun Jaithley has made withdrawals/redemptions from National Pension System on maturity free from tax up to 40 percent of the whole amount accumulated. Now, not a single withdrawal was free from tax unlike other contending schemes like PPF & EPF where total withdrawal/redemption was free from tax. It is the most significant step towards building the scheme of NPS more striking and making it in accordance with the additional EEE pension plans.
This has totally made it striking for the investors to withdraw/redeem the corpus following 60 years (not before) since any withdrawal/redemption prior to 60 years needs the utilization of 80 percent of the amount for buying annuity. This implies that just 20% can be withdrawn/ redeemed prior to 60 years. Therefore, to get the utmost tax profit, it appears cautious to withdraw/redeem after sixty years. It is because after sixty years you are able to withdraw/redeem up to sixty percent of the amount and out of this in accordance of the new scheme in which 40 percent will be free from tax.
What Under Laws of Tax?
In accordance with the present laws of tax, under Sec. 80 CCD (1) & 80CCE any investment up to ten percent of the basic Basic Pay in addition Dearness Allowance otherwise an utmost of 1.5 lakh rupees, whichever is less, is subtracted from the gross chargeable income. Any self employed individual can as well claim for 105 tax deduction of his total income under Sec. 80 CCD (1) in the maximum of 1.5 lakh rupees under Sect 80CCE. Though, the whole deduction from the gross chargeable income, which can be stated, is restricted at 1.5 lakh rupees for any invest under Sec. 80CCE that incorporates investments under sec. 80C.
From Financial Year 2015-16, any investor is permitted an extra deduction of 50,000 rupees from gross chargeable income to invest in National Pension System under Sec. 80CCD (1B). The particular deduction is on top of the utmost tax deduction of 1.5 lakh rupees permitted under Sec 80 CCE. Therefore, the whole tax advantage to invest in National Pension System under Sec. 80 CCD (1) & Sec. 80CCD (1B) is 2 lakh rupees. Only a Tier I investor can claim for the above tax advantages.
NPS is a retirement savings plan in which after attaining the age of 60, any investor is able to exit from this NPS however 40 percent of the retirement fund must be utilized for the purchase of any annuity plan. If any investor withdraws/redeems the whole amount prior to attaining 60 years, he or she must invest 80 percent of the matured sum for buying any pension plan. These conditions of exit only valid to the Tier I account of NPS which is a requirement for having a Tier II account of NPS.
NPS is at present subject to EET (Exempt Exempt Tax) structure of tax. It means that the contributions to National Pension System as well as expansion of these aren’t taxed however an approximate amount withdrawn at the time of exit from the NPS is chargeable. It is in comparison to the Exempt+Exempt+Exempt structure of tax valid to additional long-standing investment tools such as PPF & EPF where the amount of maturity is as well not chargeable.
For any National Pension System investor on the uppermost tax bracket, it currently implies that approximately 1/3 of the total amount is taxable. The sum, which is utilized to purchase any annuity plan, is though not taxable. It implies that on the off chance any investor utilizes 100 percent of the total amount for purchasing any pension plan then he or she won’t be charged. Only the amount, which he or she gets is chargeable.
Financial Year 2015-2016
|Additional Deduction||Maximum Tax Deduction|
|50,000 under Sec 80 CCD(1B)||1,50,000 Under Sec 80 CCE|
|Total Benefit||2,00,000 (Under Sec CCD (1)) & Sec 80 CCD (1B) in Tier One Account|
|Who can claim this advantage||Tier I Account Holder|