Government makes National Pension Scheme withdrawal 100 % tax free

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The Narendra Modi-led government 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 has made the NPS more tax-friendly by offering a complete tax exemption to the 60% of the corpus that an investor can withdraw on maturity.

The changes were approved by the Cabinet in its December 6 meeting but their announcement was delayed due to state elections.

Hemant Contractor, chairman of the Pension Fund Regulatory and Development Authority, said, “This is a very positive step and brings NPS at par with other retirement products. It will make the NPS more attractive and have a far-reaching impact on the pension sector in India.”

These changes in tax rules on NPS withdrawal will apply to all the subscribers, including government employees.

Currently, 40% of the total accumulated corpus utilized for the purchase of an annuity at retirement is already tax exempted. Out of 60% of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% is tax exempt and balance 20% is taxable. Now, the whole 60% of the accumulated corpus will be tax free.

The government in its other major rule change has also decided to increase its contribution to the NPS for central government employees to 14% of their basic pay as compared to 10% earlier. This move will benefit 18 lakh central government employees.