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Last Updated : Feb 02, 2017 01:20 PM IST | Source: Moneycontrol.com

Budget 2017: Relief for employees as part withdrawals from NPS now tax-free

The amendment brings about parity in tax treatment between salaried and non-salaried self-employed persons.

Moneycontrol Bureau

If you are an employee investing in the National Pension System (NPS) through your company you will now be allowed to withdraw up to 25 per cent of your contribution without having to pay tax.

The Finance Minister, Arun Jaitley has proposed to make partial withdrawals tax-free in the Budget for 2017-18. The move will come as a major relief to NPS subscribers.


“In order to provide further relief to an employee subscriber of NPS, it is proposed to provide exemption to partial withdrawal not exceeding 25 percent of the contribution made by an employee in accordance with the terms and conditions specified under Pension Fund Regulatory and Development Authority Act, 2013 and regulations made there under,” the explanatory memorandum to the Union Budget has said.

The existing provision of section 10(12A) provides that payment from National Pension System (NPS) trust to an employee on closer of his account or opting out shall be exempt up to 40 percent of total amount payable to him.

The Budget has also sought to provide parity between an individual who is an employee and a self-employed person for deduction under Section 80CCD. It has proposed to amend section 80CCD to increase the upper limit of contribution to NPS from 10 per cent of gross total income of an individual who is self-employed to 20 percent.

Existing provisions of Section 80CCD of the Income Tax Act provides that employee or other individuals shall be allowed a deduction for amount deposited in National Pension System (NPS) trusts. It says that deduction under section 80CCD (1) cannot exceed 10 percent of salary in case of an employee or 10 percent of gross total income in case of other individuals.

However, under section 80CCD (2), a further deduction to an employee in respect of contribution made by his employer is allowed up to 10 percent of salary of the employee. Thus, in case of an employee, the deduction allowed under section 80CCD adds up to 20 percent of salary whereas in case of other individuals, the total deduction under section 80CCD is limited to 10 percent of gross total income.

The amendment brings about parity in tax treatment between salaried and non-salaried self-employed persons.

Both measures will take effect from April 1, 2018 and will apply in relation to the assessment year 2018-19 and subsequent assessment years.

First Published on Feb 1, 2017 04:13 pm