NPS Withdrawal To Likely Get Tax-Free Status Similar To PPF, EPF

The earlier decision of the Union Cabinet to make the withdrawal from NPS or national pension scheme completely tax free in the hands of the investor is still not notified and tax experts this budget season hope of getting this announcement made for the retirement product. Other investment options aiming to meet retirement goals including the likes of EPF and PPF enjoy the status of EEE is tax exempt status in respect of contribution towards the investment security, interest earned and withdrawal.

In its meeting on December 6, 2018, the Union Cabinet gave its go-ahead for an increase in tax exemption limit for lumpsum withdrawal from NPS to 60% on exit from the investment. In the present landscape, 40% of the corpus under NPS i.e. withdrawn to purchase annuity is already tax-exempt. And of the 60% withdrawn at the time of retirement, 20% is taxable with the other 40% being tax-exempt.

And as other retirement-oriented products enjoy a 'EEE' status, it is the need of the hour to realign the tax structure in respect of NPS to render it more attractive for an investor.

Also, there can be a case of increase in deduction limit under Section 80CCD (1B) from the current limit of Rs. 50,000 for contribution made towards NPS.

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