In his Budget 2018 speech, Finance Minister Arun Jaitley has proposed to extend partial tax exemption benefits on 40% of the maturity corpus on closure of the account or on opting out of the NPS scheme to non-salaried or self-employed class.
Until now, as per the provisions of clause (12A) of Section 10 of the Income Tax Act, the employees making contribution to the NPS scheme are allowed tax exemption in respect of 40% of the maturity proceeds at the time of account closure or opt out by the subscriber.
To bring about a level playing field, an amendment has been proposed in clause (12A) of section 10 of the Act for extending tax benefit to all of the NPS subscribers. The amendment will come into effect from April 1, 2019 and hence will apply for 2019-2020 and following assessment years. Since the year 2015, the government has been doing all its bit to make the pension product more investor and tax-friendly.
In the current regime, partial tax exemption is allowed to NPS subscribers on the maturity amount while the annuity received from 40% of the corpus post retirement is fully taxable in the year of receipt and is charged under the head income from other sources.
An NPS subscriber on account maturity at the age of 60 years and above is allowed to withdraw upto 60% of the corpus. However if he exits the investment before attaining 60 years of age then only 20% of the amount can be withdrawn.