New Delhi: Finance Minister Arun Jaitley in his Union Budget speech on Wednesday gave employees a reason to rejoice in case they are investing in the National Pension System (NPS), to withdraw up to 25 percent of their contribution without paying any tax.
After proposing to make partial withdrawals tax-free in the Budget for 2017-18, Jaitley announced a major relief to NPS subscribers.
“To bring 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,” said the memorandum to the Union Budget.
Under the existing provision of section 10(12A), the payments from National Pension System (NPS) trust to an employee on closer of his account or opting out shall be exempted up to 40 percent of total amount payable to them.
Also, it will sought to provide parity between an individual who is an employee and a self-employed person for deduction under Section 80CCD.
However, it has proposed to amend section 80CCD to increase the upper limit of contribution to NPS from 10 percent of gross total income of an individual who is self-employed to 20 percent.
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.
The measures announced will take effect from April 1, 2018 and will apply in relation to the assessment year 2018-19.