My National Pension Scheme (NPS) is maturing in May 2016. Tell me if I will be in Exempt, Exempt, Exempt (EEE) with no tax liability if I buy an annuity with 40 per cent of the corpus, withdraw 40 per cent of the corpus and the remaining 20 per cent corpus later?
- Dr Meenu Chadha
As per the budget proposal, you can withdraw 40 per cent of the corpus tax-free at the time of retirement. If you do not want to pay any tax on the rest of the money at the time of withdrawal, you will have to use the remaining 60 per cent of the corpus to buy annuity. If you plan to use only 40 per cent of the corpus to buy an annuity as mandated by NPS and withdraw the balance amount, you will have to pay tax on (20 per cent of the corpus) it.
Before this change, an NPS subscriber had to compulsorily use minimum 40 per cent of the accumulated corpus to buy an annuity. She had the choice to withdraw the rest of the money, but the withdrawal was taxed as per the Income Tax slab applicable to the individual.
This article was originally published on March 03, 2016.
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