Government proposes exemption on partial withdrawals from pension scheme

In order to provide relief to National Pension System (NPS) subscribers, the government has proposed to provide exemption on partial withdrawals not exceeding 25 per cent of the contribution made by an employee.

"... it has been proposed to provide exemption on partial withdrawals not exceeding 25 per cent of the employee's contribution in accordance with the terms and conditions specified under the Pension Fund Regulatory and Development Authority Act, 2013," a Finance Ministry statement said here on Thursday.

"The benefit will be effective on partial withdrawals made after April 1," the statement said.

The NPS is a voluntary contribution retirement scheme. It enables systematic savings during the subscriber's working life and aims to find a sustainable solution to provide enough retirement income to every Indian citizen.

The Income Tax Act, 1961, provides that payments from the NPS to a subscriber on closure of his account or opting out shall be exempt up to 40 per cent of the total corpus at the time of withdrawal.

The amount utilised for the purchase of annuity is also exempted from tax. At the time of normal exit, 40 per cent of the total corpus is mandatorily required to be purchased for annuity. The subscriber has the option to use higher amount for purchase of annuity.

The ministry said contribution of up to 20 per cent of the gross income of the self-employed individual, other than salaried class, will be deductible from the taxable income, as against 10 per cent earlier.

"This is to provide a parity between a salaried and a self-employed person. This benefit will be available on contribution made by the self-employed persons on or after April 1," it said.

This increased limit for tax benefit will help the self-employed individuals, to save taxes on higher contribution in NPS and thereby properly plan for their old-age income security, it added.

Additional tax deduction on investment up to Rs 50,000 will continue to remain the same for all NPS subscribers, whether salaried or self-employed.

--IANS

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