I would like to know the benefit of National Pension Scheme (NPS) under new tax regime proposed in this year's budget. I read earlier column NPS Behind the scenes and I would be very much interested to know the comparison under the new tax proposal.
There is an important change in the tax treatment of National Pension Scheme (NPS) withdrawal at the time of retirement. As per the budget proposal, the subscriber can now withdraw 40 per cent of the corpus tax-free at the time of retirement. Earlier, the withdrawal from NPS was added to the income and taxed as per the Income Tax slab applicable to the individual.
At 60, an NPS subscriber must use at least 40 per cent of the corpus to buy an annuity income and s/he has the option to withdraw the rest (60 per cent) of the money. However, this withdrawal was taxed. Now, the subscriber would be able to withdraw 40 per cent of the money without incurring any tax liability. She can either use the remaining 60 per cent of the corpus to buy an annuity and avoid paying tax. The subscriber also has the option to use the mandatory 40% per cent of the corpus to buy an annuity, withdraw 40 per cent of the corpus tax-free and 20 per cent of the corpus after paying taxes on it.