Search
Close this search box.

NPS Tax Benefits and Tax Treatment at Maturity (Latest)

NPS tax benefits How to shift NPS account

Share

In this post, I will discuss tax benefits for NPS and the tax treatment of maturity proceeds. I will discuss if it makes sense to invest in NPS now or if you should invest in NPS for the exclusive benefit of Rs 50,000 under Section 80CCD(1B).

NPS Tax Benefits (Latest)

This part has not been affected by the latest budget. Only contribution to Tier-I NPS account is eligible for income tax benefits. From April 1, 2019, even contribution to Tier II NPS account qualify for tax benefits subject to certain conditions being met.

  1. Investment up to Rs 1.5 lacs into NPS in a financial year is eligible for deduction under Section 80CCD(1). Please note this deduction comes under the overall ceiling of Rs 1.5 lacs for deduction under Section 80C. In case of an employee, this deduction is additionally capped at 10% of his salary (Basic + DA). In case the subscriber is self-employed, this deduction is capped at 20% of his gross total income.
  2. Up to Rs 50,000 per financial year for any investments into NPS under Section 80CCD (1B). This deduction is over and above the ceiling limit of Rs 1.5 lacs provided under Section 80C.
  3. Contribution from the employer up to 10% of Basic Salary + Dearness Allowance is also eligible for deduction under Section 80CCD(2). There is no upper cap (in terms of amount) on this tax deduction. This deduction is over and above the ceiling limit of Rs 1.5 lacs provided under Section 80C and limit of Rs 50,000 under Section 80CCD(1B). However, this benefit is available to employees. Self-employed cannot avail this deduction.

Therefore a maximum of Rs 2 lacs can be claimed as deduction for own investment in NPS. Tax benefit on employer contribution is in excess of the aforesaid benefit of Rs 2 lacs. Go through the following post for Common Doubts about NPS. It will help clarify many doubts about NPS investments including tax benefits.

Common Question

My employer offers NPS. During the last financial year, I made a contribution (employee contribution) of Rs 1 lac in NPS. Additionally, I invested Rs 1 lac in PPF. What is the maximum tax benefit that I can get?

You can get

  1. Rs 1 lac for PPF investment under Section 80C.
  2. Rs 50,000 for NPS investment under Section 80CCD(1)
  3. Rs 50,000 for NPS investment under Section 80CCD(1B)

Section 80CCE caps the amount of tax benefit under Section 80C, Section 80CCC and Section 80CCD(1) at Rs 1.5 lacs.

Do note tax benefit under Section 80CCD(1B) and Section 80CCD(2) is not part of this cap.

An additional point to note is that it is your discretion how you want to show your NPS contribution. For instance, you showed Rs 50,000 under Section 80CCD(1) and Rs 50,000 under Section  80CCD(1B). You could have also shown Rs 60,000 under Section 80CCD(1) and Rs 40,000 under Section 80CCD(1B). You can adjust so as to maximize your income tax benefit.

It is quite possible that your employer may not agree to this and show it as a contribution under Section 80CCD(1) only and deduct excess tax. However, you can claim back this excess tax while filing your income tax return.

NPS: Tax treatment on Maturity or Withdrawal

#1 Withdrawal on retirement

At least 40% of the accumulated wealth in the NPS account needs to be utilized for the purchase of an annuity/pension plan. Remaining 60% can be withdrawn as lump sum.

Annuity purchase: 40% to 100% of the accumulated corpus

Lumpsum: Remaining amount (0% to 60% of the accumulated corpus

40% of the accumulated NPS corpus is exempt from tax at the time of retirement. So, you can withdraw 40% of the accumulated corpus without paying any tax. If you withdraw more than 40%, you will have pay income tax at your marginal income tax rate. 

The entire lump sum withdrawal (upto 60% of the accumulated corpus. Minimum: 0%, Maximum: 60%) at the time of maturity is exempt from tax. The change was effected in December 2018.

The amount that you use to purchase an annuity plan (minimum 40%, maximum 100%) is also exempt from income tax. However, the annuity income (pension) shall be taxed in the year of receipt.

If you look at it, you don’t have to pay immediately on exit from NPS. Any amount used to purchase an annuity plan is exempt. Lumpsum withdrawal is exempt to the extent of 60% (but you can’t withdraw more than 60% lumpsum). So, your tax liability will arise when you get annuity payments.

#2 Pre-mature exit from NPS (Exit before Retirement)

At least 80% of the accumulated wealth in the NPS account needs to be utilized for the purchase of annuity/pension. The entire lump sum withdrawal will be taxed (no tax relief in this case). Even in this case, lump sum withdrawal up to 40% 60% will be exempt from tax. However, since PFRDA allows only 20% lump sum withdrawal in case of pre-mature exit, the tax benefit will be limited to 20% only. The amount used to purchase annuity is not taxed. However, annuity income shall also be taxed (as per your income tax slab) in the year of receipt.

#3 Partial Withdrawal from NPS (without exiting the NPS)

Under the revised exit and withdrawal rules for NPS, limited partial withdrawal from NPS is permitted subject to certain conditions. I am not very sure about tax treatment of such partial withdrawals. As I understand, partial withdrawal shall be taxed in the year of withdrawal as per subscriber’s income tax slab. In Union Budget 2017, such partial withdrawals (to the extent of 25% of own contribution) were made exempt from income tax.

#4 Withdrawal in the event of the death of the subscriber

In the event of the death of the subscriber, the nominee can withdraw the accumulated corpus (in case of All Citizen model).  The nominee can opt for annuity payouts too. In the case of government sector NPS, purchase of annuity (at least 80%) is mandatory and remaining can be taken as a lump sum.

The lump sum withdrawal by the nominee shall be exempt from Income Tax. If the nominee uses the amount to purchase an annuity plan, the annuity income will be taxed as per the nominee’s income tax slab in the year of receipt.

Even though you can go through rest of the portion of this post too, it may not be as useful since the entire lump sum withdrawal is now exempt from tax. The portion relied on many subtleties of NPS to get beneficial tax treatment. However, now that the entire lump sum withdrawal is exempt from tax, you don’t have to worry about these lesser-known aspects of NPS. For more on if you should invest in NPS, refer to this post.

Illustration

You are 25. You put Rs 50,000 per annum in NPS for exclusive tax benefit under Section 80CCD(1B).

Assumptions:

  1. You make all contributions on April 1.
  2. Your NPS contributions earn 10% p.a. till the time you retire.
  3. Annuity rate at the time of retirement is 6% p.a.
  4. You have no other source of income other than NPS withdrawals or annuity income.
  5. During retirement, you do not avail of any tax benefits under Section 80C, 80D etc.
  6. Ignored surcharge and cess.

By the time you turn 60, your NPS would have grown to Rs 1.49 crores by the time you retire.  Minimum 40% of the accumulated corpus has to be used to purchase annuity (pension).

Let’s consider various options at your disposal.

  1. 40% withdrawn as lump sum. Remaining 60% used to purchase annuity

40% of the accumulated corpus is exempt from income tax. So, your lump sum withdrawal of Rs 59.6 lacs is exempt from income tax.

You use remaining Rs 89.4 lacs to purchase annuity.

At 6% annuity rate, you will get Rs 5.36 lacs per annum for life.

At present income tax rates and slab, your tax liability per annum will come out Rs. 27,325.

For senior citizens, the minimum basic tax exemption limit is Rs 3 lacs.

If you had invested for tax benefits under Section 80C or availed any other tax benefit, your tax liability would have been lower.

  1. 60% withdrawn as lump sum. Remaining 40% used to purchase annuity

You make lump sum withdrawal of Rs 89.43 lacs. The entire amount is  exempt from tax. Out of this, Rs 59.6 lacs is exempt from income tax. You will have to pay income tax of Rs 7.14 lacs on the remaining lump sum withdrawal amount.

You use Rs 59.6 lacs to purchase annuity. You will receive annual pension of Rs 3.57 lacs. At this level of annual income, you will have to pay income tax of Rs 700 per annum (after accounting for tax rebate of Rs 5,000 per annum under Section 87A).

  1. 40% lump sum withdrawal, 40% annuity, 20% staggered withdrawal

In a notification on October 29, 2015, PFRDA clarified that the lump sum amount can be withdrawn in up to 10 annual installments till the age of 70. Please note the installments need not be equal. This is applicable to both Government Sector NPS and All Citizens model (including corporate sector NPS). You can download the circular (Clarification of deferred withdrawal of lump sum) from PFRDA website.

Let’s see how you can use this information.

40% lump sum: Rs 59.6 lacs exempt from income tax.

40% annuity: Rs 59.6 lacs used to purchase annuity. Gives an annual income of Rs 3.57 lacs.

20% staggered: You withdraw remaining Rs 29.8 lacs in 9 annual installments i.e. Rs 3.31 lacs per year for 9 years. (To simplify calculations, I have assumed that Rs 29.8 lacs will not grow in the interim. However, in reality, you will earn returns on the balance corpus)

For nine years, you will have income of Rs 6.89 lacs (Rs 3.57 lacs  + Rs 3.31 lacs). On this amount, you will pay income tax of Rs 57,800 per annum.

After nine years, you will have income of only Rs 3.57 lacs per annum. On this, you will have to pay income tax of Rs 700.

 NPS Tax benefits tax treatment at maturity

So, you can see you are not really paying too much tax. Tax exemption on 40% lump sum withdrawal makes NPS a really sweet deal from tax perspective. Moreover, you can optimize your tax liability by staggered withdrawals.

As I had mentioned in one of my earlier posts on NPS, if you can somehow manage a lower marginal tax rate at the time of withdrawal (after retirement), you can actually save some money by investing in NPS. With these examples, it appears you can do that without much difficulty.

I will stop short of telling what you should do. You must decide on your own. Do keep in mind the assumptions taken. And there are a number of them. If you invest more, you may end up with a much larger corpus. Or if the return is higher or lower, the maturity corpus will be higher or lower. Your strategy will depend on your final corpus, your financial needs and tax rules at the time of your retirement.

Should I invest in NPS for extra Rs 50,000 tax benefit?

I have issues with NPS. The issues are with respect to rigidity in the NPS. Premature withdrawal and exit opportunities are limited. There is a mandatory purchase of annuity. If you exit before retirement, you will have to use 80% of the amount to purchase an annuity plan. Moreover, PFRDA wants to make turn it into a product that means everything for everyone.  I am not comfortable with such approach.

As I have mentioned in many of my earlier posts, your investment decisions should not be driven by tax benefits alone.

However, if you consider only the taxation angle, the case for NPS investment is really strong. For the benefits under Section 80CCD, you have alternatives in other Section 80C investments such ELSS, PPF etc. In fact, if you have investment discipline, you can probably do better with a mix of ELSS and PPF.

The benefit of Rs 50,000 under Section 80CCD(1B) is exclusive to NPS. As I have shown, you may not have to pay too much tax at the time of retirement (if the corpus is not too big).

If tax benefit is the only criterion, go ahead and subscribe to NPS for the additional tax benefit of Rs 50,000 under Section 80CCD(1B). The investors in the highest income tax bracket stand to gain the most.

In my opinion, you can consider subscribing to NPS if:

  1. Your marginal tax rate is 30%. AND
  2. Investment in NPS does not crowd out investment for other goals. AND
  3. You don’t plan to invest more than Rs 50,000 per annum. AND
  4. You are sure you won’t need this money before the age of 60 or superannuation. AND
  5. You are not planning to take an early retirement.

The post was first published in March, 2016 and has been updated since.

184 thoughts on “NPS Tax Benefits and Tax Treatment at Maturity (Latest)”

    1. Deepesh Raghaw

      Thank you Mr. Dixit. Glad you liked the post.
      Will appreciate if you could share with friends and family.

      1. Hi suppose due to non clarity on taxation of withdrawals from tier 2 account. Entire withdrawal may tax. However if buy annuity for entire sum which has been withdrawal still there would tax liability l.

      2. Sir. It was a good article on taxation. But I have one query. If I an having enough saving for 80c. And even after applying 80ccd, I need to pay taxes for other NPS contribution in case my annual contribution is 1.5 lack per annum. In that case I am paying double income tax for the single income. 1 at the time of income and 2 at the time of maturity. Is is correct?

        1. Deepesh Raghaw

          That’s a valid point, Pawan. Can’t do much about it.
          Btw, there won’t be double taxation so long as your investment is less than 40% of the accumulated corpus.

    1. Deepesh Raghaw

      Dear Ashutosh,
      You can have two types of accounts under NPS. Tier-I account and Tier-II account.
      Whatever you hear about NPS is mainly related to Tier-I accounts. Only investment in Tier-I NPS account is eligible for tax benefits.
      Tier II account is like an open ended mutual fund. You can take money in and out anytime. You don’t get any tax benefits for investing in Tier-II account. Would suggest you ignore Tier-II account.
      Please go through this post. Will help some of the doubts about NPS in general.
      http://www.personalfinanceplan.in/opinion/common-doubts-about-nps/

      1. My query is for someone who wants to shift from bank fixed deposit. Suppose I invest in tier 2 account (government securities/corporate bond) option,can I claim indexation benefit after 3 years like debt mutual fundS. If so,,then isn’t it better than investing in bank account(better taxation) and debt mutual funds(better returns so far)?

  1. If one is salaried person in 30% tax bracket, whether he can invest NPS in the name of his wife who is not employed, to get tax benefit under section 80ccd(1b) for extra 50000/- ?

    1. Deepesh Raghaw

      For 80CCD, it has to be under your name.
      Invest in your name. Why do you want to invest in your spouse’s name?

  2. Thanks. Recently Atal Pension Yojana investment is made eligible for tax excemption for tax by IT dept. As I cross 45, I invested in wife name for her persion as she is not earning now. Whether this APY investment in wife name is eligible for my tax concession ?

    1. Deepesh Raghaw

      Yes, Contributions to Atal Pension Yojana have been extended tax benefit under Section 80CCD(1) to You won’t be eligible for tax benefits by investing in your spouse’s name. You must invest in your name for tax benefit.

      1. Hi Deepesh,

        Nice post. Quick query – Is APY on Section 80CCD(1) or Section 80CCD(1B) ?
        Section 80CCD(1) i can see in my company investment portal non editable as its via salary deduction and company has not enabled that.
        However Section 80CCD(1B) is where i can edit and provide my projected investments. In case its Section 80CCD(1B) and if i am investing in APY to an extent of 9600/year does that mean i have to invest another 40,400 to reach the 50K limit in TierII in NPS?

        Thanks
        Sandeep

  3. What is the disposal of lump sump amount used to buy the annuity after the drath of the subscriber? Whether his/her spouse is eligible for life long pension or receives the amount back.what is the final disposal of that minimum 40% used to buy the annuity.?

    1. Deepesh Raghaw

      Manoj,
      I am not sure if I got your question properly.
      Lump sum amount is tax-free in the hands of nominee after death of the subscriber. Annuity income will be taxed in the year of receipt.
      The type of annuity plan is at the discretion of the nominee/spouse. If the spouse wishes, he/she can purchase annuity that provides life long pension.
      The rules are different for government and all citizen model NPS.
      Request you to go through the following post on my website.
      http://www.personalfinanceplan.in/opinion/revised-exit-and-withdrawal-rules-for-nps/

  4. I am self employed ..If I am contribute 1.5 lakh in ppf and 50,000 in Nps ( tier – 1) thus I Receive or not Rs 2,00000 deduction in 80 c and 80 ccd ..pls clear

    1. Deepesh Raghaw

      Madhu,
      You can get Rs 1.5 lacs under Section 80C and Rs 50,000 under Section 80CCD(1B).
      So, you can get a total tax benefit of Rs 2 lacs for aforementioned investments.

      1. Dear Deepesh
        But in the post above you mentioned that “This deduction is over and above the ceiling limit of Rs 1.5 lacs provided under Section 80C and limit of Rs 50,000 under Section 80CCD(1B). However, this benefit is available to employees. Self-employed cannot avail this deduction”

        So can you clarify – If my non-working spouse who is having income only from interest can invest in NPS to get tax benefit over and above 1.5 lac limit?

        1. Deepesh Raghaw

          Dear Akash,
          The benefit under Section 80CCD(2) is for NPS contribution by Employer. Therefore, non-working and self employed people cannot avail this deduction.
          Rs 50,000 extra benefit is under Section 80CCD(1B). Hence, your spouse can avail that.
          So,she can get Rs 1.5 under Section 80C and Rs 50,000 for NPS investment under Section 80CCD(1B).

  5. Whether investment under 80CCD(1) and 80CCD(1B)are subject to maximum of 10% of salary (Basic+DA)?? (e.g. if salary is 4 lacs p.a. then at the most 40000 deduction can be claimed by the taxpayer??)

    1. Deepesh Raghaw

      The capping of 10% of Basic+DA is only under Section 80CCD(1).
      There is no such cappping under Section 80CCD(1B). Investment upto Rs 50,000 is eligible for deduction.
      In your case, you can claim upto Rs 40,000 under Section 80CCD(1) and an additional Rs 50,000 under Section 80CCD(1B).
      Rs 90,000 in total.

  6. Hi I am 54 yrs old and I receive salary from govt school now I want to invt over an above 80c, now at this age which invt will b beneficial Atal pension scheme or this nps scheme please suggest.

    1. Deepesh Raghaw

      As I understand, Atal Pension scheme is only notified under Section 80CCD(1) and not under Section 80CCD(1B).
      Additional tax benefit of Rs 50,000 is specified under Section 80CCD(1B) only.
      Hence, you won’t be eligible for tax benefit over and above Section 80C by investing in Atal Pension Yojana.
      So, NPS is the only option for you.

      1. Thanks for your reply.. so now only 3 yrs of service is left for my retirement and if I invest in Nps then for 3 if I invest 50000 then 150000 will b invested and then retirement so I have 2 option full withdrawal and it is taxable even monthly withdrawal then also it is taxable right??

        Even further please let me know abt the return whether its advisable to invt in nps can I earn good return??

        1. If I were you, I wouldn’t invest in NPS. Too little time for investment to play out.
          Returns in NPS are not guaranteed and not market linked.
          Annuity on the corpus will be negligible.

          1. But if one is in 30% tax bracket, at least he will get tax rebate, annuity might be less. Does it make sense?

    2. Hello Aditi,

      As far as I know, Atal Pension Scheme has age restriction, and only subscribers upto 40 years can enroll for it. Hence you will not be able to enroll for the same

      Hope this helps. Thanks

  7. Dear Sir ,

    I work with a govt financial institution and i am enrolled in NPS . For the A.Y 16-17 i have done investment in PPF of Rs. 1.5 lacs . MY NPS contribution and my employer’s contribution in NPS is around 70 thousand.

    In the projected income tax sheet given by accounts dept my overall deductions is shown as 1.5 lacs + company contribution of Rs. 70 k under section 80 ccd2 whereas my contribution is shown under 80 ccd 1 which is not counted as part of overall deductions.

    I want to know whether my contribution towards NPS can be shown under section 80 ccd1b so that i can avail rebate of upto Rs.50k and if possible in case of employer persisting to show it under 80 ccd 1 whether i can get refund while filing of income tax.

    If possible share the relevant clause of income tax. Thanks in advance

    1. You can do that while filing income tax return.
      You can refer to Section 80CCD of the Income Tax Act. It does not say at any place that you can not take deduction for contribution as an employee under Section 80CCD(1B).

  8. Mangesh Kulkarni

    Hi Deepesh,
    As an IT Payer in highest 30% bracket for FY2016, I will invest 150000 in 80 C(other) and wish to use around 50000 from salary deduction (80CCD(1B) When filing returns) from Employer contribution. I need to understand, whether any additional contributions made in NPS, will dilute the benefit / tax benefit as compared to other investments [which give around 10%] ?

    1. Deepesh Raghaw

      Hi Mangesh,
      Employer contribution comes under Section 80CCD(2).
      I think you are talking about your contribution.
      Second part of your question is not very clear to me.
      Tax benefits are capped. If you invest more, you won’t get benefit on the excess investment.

  9. Balasubramanian

    I am covered by central govt. pension. 53yrs&in20%tax slab.shall invest in NPS ofrs.50000 for 6yrs.what will be post retirement return& gain pl reply.

    1. Deepesh Raghaw

      Dear Sir,
      NPS returns are market linked. Hence I cannot comment.
      The returns will also depend on the allocation between Equities (E), Corporate (C) and Government securities (G).

  10. Sir,
    Another excellent read, I do have a question, the example of being 25, and saving 50000 a year until the age of 60.
    Based on the maths, I think you have chosen compound interest, but this is units purchased. I know it is an example, but is there compound interest in this on the interest earned, or will it just be NAV units value

    1. Hi Chris,
      Am glad you liked the post. Please do share with friends and family.
      See, by definition, compound interest means you earn interest on interest.
      In NPS, you will get units just like you do in mutual funds. I have simply assumed a rate of return for demonstration.
      Hope this answers your query. Let me know if you need any clarification.

  11. Dear Deepesh,

    If we go for staggered withdrawal post retirement , then will the money left in NPS account still earn returns ?

    1. Deepesh Raghaw

      Dear Pravin,
      Till such you do not withdraw the entire amount, you money remains invested and continues to earn returns. Please understand returns in NPS are market linked.

  12. Your blogs are really useful for someone planning to invest. I have few queries –
    1> For last few years I am investing 1.5 lacs in PPF to get tax deduction under section 80C/80CCD etc. I heard that investing additional Rs 50000 in NPS Tier 1 will give additional 50000 tax benefit. Is it correct?
    PPF = 1.5 Lacs
    NPS = 50000
    Total = 2 Lacs ?
    2> Any other investment which gives good % of fixed returns or/and tax savings as well?
    3> What about RGESS? I didn’t find any blogs in this section. I am very new to investing in equity market? which equity to invest in RGESS?

    1. Thanks Somnath.
      1. Yes,you can get for Rs 2 lacs in this manner. However, don’t just be driven by tax benefits.Consider product suitability too.
      2. Apart from Section 80C/80CCC/80CCD, only select expenses (and not investments) are considered for tax benefits. For instance, health insurance premium. A few salary allowances are tax-exempt too. There are posts on my website on these topics.
      You can consider purchasing a house. You will get tax benefit for interest payment and principal repayment.
      3. I don’t like RGESS. Much ado about nothing. One of those schemes which are drafted with little application of mind. Wouldn’t suggest you go for it.

      1. Thanks for the suggestion.
        Could you please provide me details on various investment where I can spread my money. I do invest in PPF/now NPS & already exhausted 2Lakhs in terms of deduction. I am also paying for medical insurance premium of Rs 22000 which I am also getting deduction from taxable income. I am also using Medical Reimbursement/LTA allowance/conveyance allowance as deduction apart from section 80C/CCD(1B)/80D.

        1>Is there any product where I can invest to save tax?
        2> How is gold sovereign bond? I fear on the depreciation of gold value at the time of maturity of bonds in 5/8 years?

        Can you suggest anything more.

        1. Deepesh Raghaw

          1 Guess that is pretty much it. You can pay health insurance premium for your parents too or or you can purchase a house on loan.
          2. Price risk will always be there.
          Don’t get fixated with tax benefits. Write about financial goals, time horizon and amount needed to achieve those goals.
          Invest in a way so that you are likely to reach the targets.
          Tax-saving is secondary.

  13. vmp_2006@yahoo.com

    Sir, is there any CAP for investingin NPS. Like in PPF and girl child (SSY) limit is 1.5 L.

    I am not concerned with tax benefits.

  14. pramendra kumar

    Hi sir
    If my Employer contribution is not included under my income in form 16. In this case can I claim Tax benefit under 80CCD(2)? please clarify.

    1. Deepesh Raghaw

      It is already accounted for. You have already been tax benefit under Section 80CCD(2).
      Don’t take it again.

  15. Is the investment under APY is eligible for additional tax benefit of Rs. 50000-00 under 80ccd(1) ???

    1. Deepesh Raghaw

      APY is notified under Section 80CCD(1). I would extend this to Section 80CCD(1B) too for extra benefit of Rs 50,000 per financial year.

  16. Manish Ochani

    Hi,its a nice & informative article.

    Can I invest in NPS as debt portion of my portfolio.?
    An portfolio should contain mix of equity+ debt.I am already investing in MFs thru SIPs(10k p.m.) , for debt portion I was investing in PPF but now I am thinking of investing in NPS instead of ppf which would give me addl. tax break as well as higher return than ppf ( but with higher lockin)I fall in 20% bracket & 35 yrs old.

    Pls suggest

    1. Deepesh Raghaw

      Thanks Manish.
      Yes, you can invest in debt too in case of NPS.
      If excess tax benefit is on your mind, you can invest up to Rs 50,000 in NPS.
      Do keep in mind NPS has many restrictions.
      I have not looked at your finances. So, wouldn’t comment beyond a point.
      But do not make it an either or situation. You can invest in NPS and PPF both.
      To be honest, I am a big fan of PPF account. It remains an excellent debt product and is extremely flexible after initial maturity of 15 years.
      So, even if you decide to invest in NPS for your debt portfolio, do not invest more than Rs 50,000 per financial year.

        1. Deepesh Raghaw

          Birendra,
          I guess I gave the wrong answer yesterday. Redemption from Tier II account may also be taxed at your marginal income tax rate (income tax slab).
          Two possibilities:
          1. To be taxed as per income tax slab
          2. To be taxed as capital gains.
          There is still some confusion.
          If it is considered capital gains, then investment in equity fund will be treated as equity. Otherwise debt.
          Notice the big “If”.

          1. So, is it real the cal. of tax for eqt. and debt are diff. basing on diff. formulation ? Plz publish an article on equity taxation and sort term/long term with MF investment.

            On NPS it is a complete and lucid to understand. Thanks a lot for such a nice post.

  17. What about NPS Tier II account? What is it? Contributions are not deductible but How do its gains work and withdrawal etc work?

  18. Hi Deepesh,

    I have a query related to section 80CCD(1B) present on the return form. I am a bank employee and my pf deductions goes into NPS (mandatory for us). As per the salary slip, my monthly contribution is around 4000 (yearly – 48000) and employer also contributes to the same amount. Apart from that, i have invested 1.5 lakhs in PPF last year. Can you advise me if i can claim following deductions:

    Section 80C – 1.5 Lakhs (that i invested in ppf account)

    Section 80CCD(1B) – 48000 (employee contribution)

    Section 80CCD(2) – 48000 (employer contribution)

    Or i have to show the entire amount (ppf+employee contribution towards nps) under section 80C. Please advise.

    1. Hi Saurabh,
      Deduction for employer contribution to NPS under Section 80CCD(2) is automatic. You don’t have to claim it separately.
      Section 80CCD(1B) does not mention anywhere that the contribution has to be voluntary.
      Hence, you can claim the following tax benefits:
      1.5 lacs invested in PPF under Section 80C
      48,000 invested in NPS (employee contribution) under Section 80CCD(1B).

      1. Thanks Deepesh for the quick response. One added query please. As per your post, one can claim max 10% under 80CCD(2). I have yearly basic salary of 330000. Is it so that i can only claim 33 thousand under 80CCD(2) even though the employer yearly contribution is 48000?

        1. Deepesh Raghaw

          Dear Saurabh,
          Yes, benefit under Section 80CCD(2) is capped at 10% of basic + Dearness Allowance (DA).

  19. Hi Deepesh

    I am a 31 yr old private sector employed person. I am planning to opt for NPS. Don’t have any NPS provided from employer ( no contribution from the employer).
    I already have 1.5Lac invested in 80 C through EPF+PPF+LIC policies+ home loan Principal repayment.
    If I invest 50k into NPS will it be tax exempted through 80CCD(1B) and will be additional to the 1.5 80C?
    Can I invest more will it be tax exempted from any other section?
    My base salary is 6.5lac pa.

    By the way fantastic article, Kudos and Thanks.

    1. Deepesh Raghaw

      Hi Rohit,
      You can invest in NPS and get tax deduction upto Rs 50,000 under Section 80CCD(1B).
      So, Rs 1.5 lacs under Section 80C and Rs 50,000 under Section 80CCD(1B).
      There won’t be any additional tax benefit.
      Thanks.
      Please do share the post with the friends and family.

  20. Dear Deepesh ji thanx for the valuable info.
    I want to know that under NPS whether the whole 60
    % of the lumpsum amount withdrawn at retirement is subjected to tax or only the interest earned on the investment is subjected to tax? Old clarify.

    1. Dear Khem,
      As mentioned in the post, if you withdraw 60% of accumulated corpus,
      40% of the accumulated corpus is exempt from tax.
      Remaining 20% of the accumulated corpus will be added to your income and taxed as per your income tax slab.

      1. HI,

        If 60% of the accumulated corpus is withdrawn after 60 yrs, is the 40% tax exemption on this 60% amount and 20% tax is on the 60% lump sum?

        1. Deepesh Raghaw

          Hi Jayesh,
          Suppose Rs 100 is accumulated corpus.
          Up to Rs 60 can be withdrawn lump sum
          Rs 40 of lump sum withdrawal is exempt from tax.
          Anything above Rs 40 is taxable.
          Hope this answers your query.

  21. vinit.goel@yahoo.com

    Hi Deepesh,

    One more query, If i withdraw, 40% amount after retirement and withdraw rest of the 20% amount on yearly basis (withdraw only that much amount so as to have leave impact on taxability). I hope this approach should be OK as per current rules. For the rest 40%, we can buy some annuity plan. Also, can you provide some insight on the approx monthly income received if i am expecting total corpus to be around 50 Lakhs. (i.e. monthly income received on purchase of annuity of 40% amount i.e. 20 Lakhs).

    Thanks.

    1. Deepesh Raghaw

      Yes, you can do that. I have discussed the scenario in the post. You can minimize your tax liability by staggering your lump sum withdrawals.
      Annuity income (monthly income) depends on the prevailing annuity rates at the time of your retirement. Annuity rates depend on multiple factors including your age and type of annuity chosen.
      For instance, if the annuity rate is 6%, you will get Rs 20 lacs *6% /12 = Rs 10,000 per month.
      Suggest you go through the following post.
      http://www.personalfinanceplan.in/opinion/annuity-options-under-nps/
      You might also find the following post useful.
      http://www.personalfinanceplan.in/opinion/you-can-contribute-to-your-nps-account-even-after-you-turn-60/

  22. Good post about exit procedure in NPS. I have a query. I was state government employed .I worked about 8 months In that capacity.My NPS was too opened there. Now I left that organization and now privately employed. Now I want to invest in NPS account which was previously opened there. How can I convert my status in NPS from gov to private. So that i can continue with that NPS.Other option I am thinking completely withdrw all money from that NPS account how can I do that???? When I am checking my credentials of NPS online it is showing deactivated.or should I open another e-NPS account online for contribution .plz reply

    1. There is no need to close NPS account. You can transfer it.
      You can fill Form ISS-I and submit to a PoP you want to continue your account with.
      You will have to shift to All Citizens model.
      Can’t say why your account is deactivated. Perhaps because there was no contribution in the entire year.

        1. Dear Anand,
          I have discussed these cases in the post.
          About partial withdrawals from NPS, I am not clear about taxation. Await clarity.

    1. Only investment in own NPS account is eligible for tax benefit.
      So, you won’t get any tax benefit for investing in wife’s NPS account.

      1. Sir, iam a state government employee having nps account with my contribution 59000 and govt contribution 59000 so i have 80c savings are 190000 . In this case please suggest me to get tax calculations

        1. Your question is not very clear. 59000+ 59000= 108000
          You can get tax deduction up to Rs 1.5 lacs under Section 80C.
          You can get an additional deduction Rs 50,000 under Section 80CCD(1B) for NPS contribution.

  23. i shall be 60 years old in Feb.2017.Ihave opened my NPS tier 1 account in January 2016 and deposited 50000 rupees and have claimed tax benefit under 80 CCD(1b)for financial year 2015-16 and again depositd 50000 rupees in August 2016 for claiming tax benefit under 80CCD(1b) for Financial year 2016-17. My NPS accont will mature in Feb2017 as i will be 60 years old in Feb. 2017.
    My Question-
    1- My date of retirement from service is on Feb 2022 after achieving 65 Years
    age. My NPS account will mature in Feb 2017 as mentioned above while my
    retirement is Feb2022. Will i be eligible for 40% Tax exemp on NPS corpus withdrawl from on closure 0f my NPS account in Feb 2017 as i will become 60 years old. Please Reply

  24. Banamali Pal, Kolkata, 26/10/2016

    After death of the subscriber at age 70 year, what will be the amount of annuity prices i.e. 60% of deposits?
    if clarify it, please!

    1. I am not in a position to comment on annuity rates in the future.
      Existing rates, you can check with insurers.

  25. I am an NRI just turned 59 and returned home and planning to be in India
    I dont have a pension and plan to start contributing to NPS.I am aware that I can contribute only till age of 60.Is it possible to make me a one time payment before I turn 60 years and make myself elligible for a reasonable pesnion at the ege of 70,since I am planning to work for further period of 10 years.I know I am elligible for tax benefit upto 2 lakhs per financial year.
    I am basically planning to put part of my corpus which I earned while I was abroad to earn me a reasonable pesnion

  26. sir, recently i open nps with initial contribute of 500, if i donot want to cont. , then what can i do for refund?

  27. Good Day,

    Could you please advise on:
    Can one person can buy multiple Annuities ?

    Example:

    First Annuity with own savings before retirement age

    Second Annuity with NPS – 40% bucket

    Regards,
    Uday

      1. Good Day Deepesh,

        Thank you for your kind response / advise.

        Please advise on tax implications to NRI:

        Till now, i haven’t filed any Tax assessments in India, as i don’t have any other source of Income in India, other than Interest amount of FD’s in NRE account.

        1. If I start contributing to NPS through my NRE account (Ex: 2 lacs per annum), what is the maximum tax exemption to an NRI.

        2. Do i need to start filing tax assessment if I start contributing to NPS?

        Much appreciate your kind advice.

        Regards,
        Uday

        1. Hi Uday,
          Please understand I am not a tax expert. Suggest you talk to a Chartered Accountant for your taxation queries.
          I will answer the question based on my limited understanding.
          Tax exemption limit is Rs 2.5 lacs for NRIs irrespective of age.
          NPS has nothing to do with your filing return.
          When in doubt, it is always better to file income tax return.

  28. Hi Deepesh,

    60% withdrawn as lump sum case:

    You make lump sum withdrawal of Rs 89.43 lacs. Out of this, Rs 59.6 lacs is exempt from income tax. You will have to pay income tax of Rs 7.14 lacs on the remaining lump sum withdrawal amount.

    My understanding is 20% amount is taxable (89.43 – 59.6 = 29.83 lacs) and this includes principle + interest earned on the investment. So why tax on whole amount, tax should be applied only on interest earned amount (not on principle amount). Can you please clarify more on this?

    Thanks.

  29. HI Deepesh,

    Thanks for the detailed post.

    I have one query related to exit criteria. I work in a private firm and suppose i work till 50 yrs of age and i don’t have any job beyond this age. Will this be considered as a retirement? And if i can withdraw my nps as per retirement rules at this age?

    Thanks,
    Saurabh

    1. You are welcome, Saurabh.
      With NPS, for all citizens, the age is 60.
      You will have to purchase annuity with 80% of the corpus.

      1. Thanks for the response.

        In case of exit before 60, i have to purchase annuity of 80% corpus. Rest 20% amount is considered non taxable or this would be added to the total income of that year and is taxed as per applicable slap?

          1. Sorry Deepesh, one final query as i was about to enrol via eNPS. I want to invest 50000 amount to claim tax benefit unter 80CCD (1B). Is it possible to create online account via adhaar number process with 1000 rs and then putting rest of the 49000 amount IMMEDIATELY? Or i have to first send the docs to CRA and wait until CRA activates my account from backend for further contributions. Please advise.

          2. I am not too sure about this. Guess the account is blocked if CRA does not receive documents within 90 days.
            Guess you can do multiple transactions till then.
            Why don’t you create account with Rs 50,000?
            Btw, CRA is quite swift.

  30. Ceejay.neha@gmail.com

    If we are employed under central government and the gross salary includes employers share of nps as well..then my net salary would be minus 20 % of basic +da ?? As I have to contribute 10 % along with employers share of 10% ..Pl clarify??

      1. Hi…my gross salary states that it is inclusive of nps employer contribution so my net take home pay will exclude my Aas well as my employers share of nps ? that is 10% my share and 10% employers or just 10% overall deduction will take place?

  31. Hi,

    Am an NRI, would like to invest in NPS for 18 years, by the time I reach 60 years.

    Please advise on:

    1. I would like to invest 1 lac per month on the first year of joining the NPS via NRI account (which equals to 12 lacs on the 1st year)

    2. From 2nd year onwards (for 17 years) i prefer to invest 3000 thousand per month.

    What would be my retirement corpus for a total of 18 years, time I reach 60 years?

    Thanks for advice.

    1. Hi,
      Since you are a NRI, you need to reconsider your decision to invest in NPS.
      Unless, you fall in highest income tax bracket for income in India, I do not see much benefit.
      In any case, do not invest more than Rs 50,000 per annum.
      The returns in NPS are market linked. Hence, cannot comment about maturity amount.

  32. I HAVE AN EMPLOYEE OF GOVERNMENT ORGANISATION. RS. 50000/- DEDUCTED FROM MY SALARY AS PART OF NPS CONTRIBUTION. RS. 50000 ALSO CONTRIBUTED BY MY EMPLOYER.

    2. I HAVE INVESTED RS. 50000/- IN PPF. NOW I WANT TO AVAIL THE TAX BENEFIT OF RS. 50000/- WHICH IS UNDER 80.CCD(1B).

    3. CAN I INVEST THE RS. 50000/- IN PPF OR ELSE I HAVE TO INVEST IN NPS ? CAN MY MANDATORY PART OF NPS AUTOMATICALLY ADJUSTED TO 80.CCD(1B)

      1. THANKS FOR REPLY

        I HAVE 2 MORE QUESTIONS

        1. IS THERE ANY CEILING LIMIT UNDER (80.CCD.2) WHICH IS CONTRIBUTED BY MY EMPLOYER?

        2. IS MY MANDATORY PART OF NPS AUTOMATICALLY SHIFTED UNDER (80.CCD.1B)?

          1. I have mentioned earlier that you can also consider your mandatory contribution under Section 80CCD(1B) at the time of filing IT return.

  33. Just wanted to know post the age of retirement that is 60. Can we choose not to withdraw the proceeds and continue investing for the purpose of claiming deduction Rs 50000 or purely as an investment option.

  34. Hi Dipesh,
    I could not understand the tax exemption on “Contribution from Employer” part as explained by you. Did you mean that employee is going to get the tax exemption benefit for the amount contributed by employer or is it the employer who is going to get the tax exemption benefit? Could you clarify it in detail with a small example, please?

    1. Dear Manish,
      Don’t worry much about tax benefit for employer contribution under Section 80CCD(2).
      It (tax benefit) is automatically adjusted in your salary slip. You do not have to do anything about it.
      You get the tax benefit for employer contribution.
      Employer also gets but that shouldn’t be any concern for you.

      1. Thank you Deepesh.
        So, just to make sure I am getting it correct. Let’s say of I contribute Rs.3500 (assuming this is 10% of my basic), then my employer also contributes Rs.3500 (an equal contribution from employer, not more than 10% of basic).
        So, I would be getting tax exemption on Rs.7000 (3500+3500). Am I correct Deepesh?

        Regards,
        Manish

          1. Thanks much Deepesh. Appreciate your patience bearing with me.

            So, what I am understanding from your response is that the employer’s contribution basically comes from employee’s salary itself.

            Summarising my understanding in the below two scenarios. Could you please take a quick look?

            Assuming employee has
            Gross Income = 10 Lakh
            BASIC+DA = 3 Lakh
            OTHERS = 7 Lakh
            Employee contribution in 80CCE = 1.5 Lakh

            SCENARIO 1 – With NO NPS:
            Tax Exemption that employee would get:
            2.5 Lakh(0% Tax Slab) + 1.5 Lakh = 4,00,000.

            SCENARIO 2 – With NPS:
            Assume employee contributes 50,000 to NPS
            Employer Contributes 30,000 (10% of Basic 3 Lakh).

            Tax Exemption that employee would get:
            2.5 Lakh(0% Tax Slab) + 1.5 Lakh + 50000 + 30000 = 4,80,000.

            Here, with employers contribution to NPS (30,000), did you mean that employee’s salary would get restructured, something like this (3 Lakh Basic + 6,30,000 Others + 30,000 employers contribution to NPS)? Over all Gross Income remains same 10 Lakhs, just that 30000 is going to NPS directly by employer, which could be tax exempted under 80CCD(2).
            Did I get this one right, Deepesh? Please help.

            Warm Regards,
            Manish

          2. It depends how your payslip is structured. Typically, employer contribution is part of CTC.
            Minor correction: 1.5 lacs under Section 80C.
            Your employer either contributes or does not contribute. Hence, you cannot have multiple scenarios.
            Scenario 2 is correct.
            Yes, if Employer NPS contribution is part of CTC.

  35. Thanks Deepesh. I got the complete clarity from you now about the tax treatment in NPS.
    Today, I checked with my employer and they told that they have tie-up with ICICI Bank NPS and only with this tie-up they can contribute the employer’s contribution to NPS. At first I could not understand this (ICICI Bank NPS) but then got the clarification from ICICI Bank that its ICICI as POP for NPS.

    Since I wasn’t aware about this tie-up thing, I had already opened my NPS online via https://enps.nsdl.com/ website.
    Now, to avail the employer’s contribution, ICICI bank suggests me to transfer the POP to ICICI.
    Could you please throw some light on this part as well? How does the POP impact our NPS?
    And is there any difference between eNSDL POP and ICICI POP? Can I face any difference now or later if I maintain POP with ICICI versus eNSDL.

    Also, does ICICI POP allow me choose the pension fund manager of my choice or would it necessarily be ICICI Prudential Pension Fund since I am not getting an accurate response from ICICI on this?

    Regards,
    Manish

  36. Dear Deepesh,
    Is the Arrears of NPS deposited by the employer upto 10% of salary taxable? These are within the 10% tax free limit for that year but have been paid in the current financial year.

  37. Hello Deepesh,

    Really good article. I am assuming that NPS deposited by the employer does not have any ceiling on the amount. and I am also entitled for tax exemption on voluntary contribution NPS of 50000 on top of this. could you please confirm ?

    Thanks.

    1. Dear Deepak,
      Benefit for employer contribution under Section 80CCD(2) is automatic. You don’t have to do anything about it.
      Yes, tax benefit for employer contribution to NPS does not have an absolute cap. However, it is still capped at 10% of basic+DA.
      Yes, benefit for own contribution of Rs 50,000 under Section 80CCD(1B) is over and above this.

      1. I AM PLANNING TO INVEST RS. 50000 IN NSC. AFTER 5 YEAR HOW MUCH I WILL GET AT THE RATE OF 8 %.

        2. HOW MUCH AMOUNT I HAVE TO PAY AS TAX.

  38. NPS pre-mature exit terms stipulate that you need to be invested for a minimum period of 10 yeras before any premature exit. On completion of 10 years, you can withdraw maximum 20% and annutise 80% of the corpus. However, in case the corpus at the end of 10 years is less than 1 lac, you can withdraw full corpus. I would like to know about the taxability of withdrawn amount
    -in former case (20% withdrawal) and
    -latter case (full withdrawal of less than 1 lac corpus)

    1. Dear Neha,
      Suggest you go through the post again.Your first query is answered in the post.
      As I understand, in case of pre-mature exit with full withdrawal, 40% is exempt while the remaining 60% will be taxed at your marginal rate.

      1. Thanks for your reply sir!

        I’m confused about the 20% case because, even in case of superannuation, we are allowed to withdraw 60% but only 40% is exempt. Similarly, if we are allowed to withdraw 20%, will that mean full 20% is exempt or 40% of 20% is exempt?

        1. Neha,
          If you are allowed to withdraw only 20%, how can 40% be exempt? or rather exemption of 40% (in income tax rules) becomes useless in this specific case.
          NPS rules have been drafted by PFRDA while income tax laws are by Income Tax Department.
          You can expect incoherence in the rules.
          Do note I am not a tax expert.

  39. My mother got ana NPS plan last year (financial year 2015-2016) and invested Rs 50,000 in it to ge the deduction. He turned 58 in October 2016 and retired (Haryana govt, retirement age is 58). So her this year’s income is from salary till october plus pension from november.

    I want to know that can she invest Rs 50,000 this year to get tax benefit (above 80c). Also, then can she withdraw the amount next year as the corpus will be less than 2,00,000.

    Thanks in advance for any help!

    1. Hi Abhishek,
      She can invest this year too and get tax benefit under Section 80CCD(1B).
      I assume she opened account under All Citizens model.

  40. Hi,

    I am a general query on NPS tax liability on maturity. It is shown as the whole amount of 20% of the maturity corpus (considering 40% withdrawal without tax and 40% compulsory investment for purchase of annuity) would be taxed at the prevailing tax rate. My question is, why my own contribution in the NPS would be taxed again? Tax calculation should have been on the earning only. (example: out of the corpus of 1.49cr, own investment is 17.5 lacs over 35 years). Hence the real earning is 1.32 cr and not 1.49 cr. Tax liability should be on 20% of 1.32 Cr. Is my understanding OK?
    Regards,

    1. Deepesh Raghaw

      Hi Sumanta,
      I would refrain from going into “why” part.That’s the way it is.
      20% (as mentioned in your example) will be taxed at marginal rate.

  41. sanjay k srivastava

    Dear Sir,
    I have prematurely (within 3 year of starting investment) exited from NPS. On exit I received the remaining 80% of the entire corpus, amounting to around RS 25,000/-.. My entire corpus was mere around Rs 30,000/-. 20% of which I had already withdrawn, on which I paid the tax also.
    Please tell me what is my tax liability on the remaining 80% of the total wealth which I have received, and how to calculate tax on this amount. Will this gain be long term or short term? NSDL and CRA have not given me any capital gain statement.
    I look forward to hearing from you, at your earliest convenience.
    Thanking you in anticipation.
    Faithfully, yours
    Sanjay k srivastava

    1. Deepesh Raghaw

      Hi Sanjay,
      I am not sure if I got your question right. Too many percentages thrown around.
      As I understand, over 40%, everything is taxable at marginal tax rate.

      1. sanjay k srivastava

        Dear Sir,
        Many thanks for the prompt reply
        Please tell me how I should calculate tax on RS 25474/- (the remaining 80% of the total wealth I have received) Besides, will the tax be short term or long term? Where should I mention this in the ITR 2 form?
        Faithfully, yours
        Sanjay

        1. Deepesh Raghaw

          Hi Sanjay,
          Everything above 40% of the accumulated corpus is taxable.
          There is no concept of capital gains in NPS.
          For filing returns, please talk to a Chartered Accountant.

          1. sanjay k srivastava

            Dear Mr Raghav,
            Thank you very much indeed for your response and guidance.
            Faithfully, yours
            Sanjay k Srivastava

          2. Everything above 40% is taxable? That means our accumulated contributions + returns are taxable? Whereas, only the return generated from our contribution should be taxed .. plz clarify??

    1. Deepesh Raghaw

      Hi Anil,
      There is no concept of interest in NPS.
      Returns are solely through capital appreciation (increase in NAV of units purchased).

  42. Dear Deepesh Sir
    Thank you first of all for the valuable knowledge & expertise you shared..
    Reading since yesterday.

    I am a Semi Govt employee.
    I works in Aided (Granted) private college
    as Assistant Professor
    Grant is received from Maharashtra Government

    I have compulsory NPS contribution ( Earlier DCPS – Defined Contributory Pension Scheme)

    In FY 2016-17
    Rs. 1,05,000 in deducted by Govt & deposited to my NPS account.
    Same amount is contributed by State Govt ( Not by employer – As it Govt aided college) to my NpS account
    So 1,050000 my contribution
    & 1,05,0000 Govt contribution
    Actually U did not received it but its directly deposited by GoVt to NPS account.

    From your post I am bit clear but stiil have some doubts about exemption in 80cccd 1b
    & 80ccd 2

    My Gross salary excluding Travelling Allowance & Proff. Tax is Rs.7,35,000

    I have exhausted my 80c limit already 1,60,000

    Kindly guide can I claim
    Rs. 1,50,000 80C
    Rs. 50,000 80ccd 1b Employee Contribution
    Rs. 73,500 (10% Govt contribution or 1,05,000 Govt share )

    Have I to add Govt share in my salary while filing return

    Because if I add it & deduct in 80ccd 2
    It will be useless & of no use.

    My college has only shown Rs. 50000 under 80ccd 2 in form 16 A

    I am so confused

    Kindly reply

    Hemant
    gawadepatil@gmail.com

    1. Hi Hemant,
      Thanks. Please share the post with your friends too.
      You can take Rs 50,000 under Section 80CCD(1B). I assume you have not counted it towards Section 80C.
      Yes, employer contribution can be taken under Section 80CCD(2). You can take it upto 10% of basic + DA.
      You need to look at your Form 16. Typically, this deduction under Section 80CCD(2) is automatic. So, you don’t have to do anything on your own.

  43. Hi Deepesh,

    Thanks for this post – it really clarifies many doubts. One question – I am working in a private Sector and want to avail the additional rebate of INR 50000/-

    Currently due to investment in ELSS and LIC my 80C limit of 1.5 lpa is exhaiusted. My company does not provide for NPS in my Pay breakup.

    So, if I myself contribute to NPS Tier-1 account, then will this be considered as a valid additional rebate contribution, or will it be clubbed under 80CCE limit of 1.5 lakhs.

    1. You are welcome, Keshav. Please share the post with you friends.
      Right, in that case, you can show it under Section 80CCD(1B)
      This will be over and above Section 80CCE of Rs 1.5 lacs.

  44. I m 42 year old want to invest Rs.50000 in Tier I NPS what will be the pension at age 60 year onward. And may i change my Pension fund manager after one / two / three or else if i want…

    1. NPS provides market linked returns. Pension will depend on accumulated corpus and the annuity rates prevailing at the time.
      Yes, you can change your fund manager.

  45. Hello Deepesh, Thank you for your post.

    Lets assume a person retires at age of 60 with corpus of 1 crore and he/she withdrawn 60% as lump sum after paying all applicable taxes. Remaining 40% he/she used to purchase annuity for which he’ll get pension for life time till he is alive.

    After his/her death what will happen to this 40% which he used to purchase annuity ? who will get this money ?
    Govt. of India or nominee of person or fund manager company ? or….. ?

    Thank you in advance.

  46. Hello Sir,
    I Just wanted to enquire that i have a balance 200000 in nps and i am getting retired in a year, if i opt to withdraw the whole amount would it be taxable ??

    1. Sir,
      The tax treatment remains the same.
      40% of the corpus can be taken out tax-free.
      For the remaining 60% (atleast 40% needs to go for purchase of annuity plan), whatever you get is taxable at your slab rate.

  47. Dear Sir, If one is extending beyond age of 60 i.e. withdrawing only 40% lumpsum as per your example and purchasing Annuity with 40% of the corpus will the 40% lumpsum withdrawal be tax free as there is no “closure or opting out of Pension scheme” as required under Section 10(12A) of Income tax Act? Even the FAQs on NSDL/PFRDA website are silent on tax aspets.
    Further as per circular interpretations can one opt for continuing contributions & also defer purchasing annuity for 3 years?

    1. Deepesh Raghaw

      Same tax rules will apply whenever you close your NPS account.
      You purchase annuity (or defer purchase by upto 3 years) when you close your account. Therefore, you can’t do both at the same time.

  48. I have withdrawn the entire amount of less than Rs. 2 lacs on attaining 60 years. Out of this 40 % of withdrawal is taxable and balance 60 is taxable as per extant instructions.

    please advise under which column in ITR while submitting Income return for AY 2018-19,, this 60 % withdrawal amount can be shown

    1. Deepesh Raghaw

      Dear Sir,
      As I understand this income would be treated as “Income from other sources”.
      Request you to consult a Chartered Accountant.

  49. Withdrawal in the event of death of subscriber
    In the event of death of the subscriber, the nominee can withdraw the accumulated corpus (in case of All Citizen model). The nominee can opt for annuity payouts too. In case of government sector NPS, purchase of annuity (at least 80%) is mandatory and remaining can be taken as lump sum.

    how can we know our nps is government or all citizen model

  50. Sir, Need below clarification on NPS.

    1) The commutation amount i.e.withdrawal lumpsum in the hands of subscriber is taxable?

    2) If subscriber withdraws some amount and some amount put in Annuity, he gets pension. Will Nominee gets pension afterwards? or he will get lumpsum amount?

    3) If it is lumpsum amount, is it taxable in the hands of nominee?

    4) In case subscriber continues and in case of eventuality, will nominee get entire corpus and is taxfree?

    1. 1. Upto 40% of the accumulated amount is exempt. Anything above is taxable.
      2. Depends on the annuity plan you choose.
      3. Any amount received due to death of subscriber is exempt. If the annuity plan is such that the nominee also gets pension, the pension will be taxable.
      4. I am not sure if I got your question right.

  51. Dear Sir,

    Thank you for this post. The explanations are clear. The post was very helpful to me. Also, appreciate your effort in patiently answering so many of the queries posted in the comments section.

    Can you please help me with one query?
    I plan to open an NPS account and contribute, say, around Rs. 5,000/- per month. As I have already crossed 40, I will not get much benefit at the time of retirement. To “make up” for this, I am thinking of investing an initial amount of around Rs. 1 or 2 lakhs to NPS. Is this kind of payment allowed? Will this help me in getting slightly better returns at the end of my work life?

    Regards

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.