25% OF CORPUS CAN BE TAKEN OUT Early Withdrawal from NPS will be Tax-Free
Parity between salaried and self-employed
Mumbai: Early withdrawals from the National Pension System (NPS) will not attract tax, the Budget has clarified, and experts suggest using thisroutetoincreasethetax-freecomponentof yourretirementcorpus.An NPSsubscribercanwithdraw25%of his contribution to the corpus for emergencies before retirement.
Forinstance,letusassumethatyour corpus now is ₹ 2 lakh -- ₹ 1 lakh contributed by you and the remaining by your employer. Instead of withdrawing the entire amount at retirement, you can withdraw ₹ 25,000, or 25% of your contribution, earlier, without any tax incidence. The remaining ₹ 1.75 lakh is withdrawn on retirement. Since 40% of this ₹ 1.75 lakh or ₹ 70,000 is tax-free at retirement, the total tax-free amount goes up to ₹ 95,000 (`25,000 + ₹ 70,000). Had the entireamountbeenwithdrawnatretirement, the tax-free component would have been ₹ 80,000.
Moreover, till now salaried NPS subscribers enjoyed an extra advantage. While they can contribute up to 10% of their income to NPS as own contribution and another 10% as employer’s contribution, the selfemployed were allowed to contribute only 10% of their income. Now, self-employed individuals are eligible for deduction up to 20% of gross total income for contribution made to NPS. “It is good that the anomaly regarding the NPS exemption has been rectified in the Budget,” said Manoj Nagpal, CEO, Outlook Asia Capital.