25% OF COR­PUS CAN BE TAKEN OUT Early With­drawal from NPS will be Tax-Free

Par­ity be­tween salaried and self-em­ployed

The Economic Times - - Front Page - Times­group.com

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.

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