The subscribers of National Pension Scheme (NPS) can now partially withdraw their contributions made under National Pension Scheme (NPS), Pension Fund Regulatory Development Authority (PFRDA) said in a circular. The pension regulator has permitted withdrawal of amount not exceeding 25 percent of the contributions made by such subscriber to his individual pension account. However, PFRDA has issued such permission so that its subscribers can meet specified expenses. NPS subscribers who have contributed for three years can now withdraw up to 25 percent of the corpus for meeting specified expenses namely purchase of residential premises, treatment of critical illness, higher education and marriage of children.
NPS is a voluntary, defined contribution retirement savings scheme that enables the subscriber to accumulate savings during his or her working life. Under this scheme, you can open two types of accounts – Tier I and Tier II. The Tier 1 account is non-withdrawable till the person reaches the age of 60. Partial withdrawal before that is allowed in specific cases. Meanwhile, the Tier II National Pension Scheme account is just like a savings account and subscribers are free to withdraw the money as and whenever they require. The circular further said that “in case the subscriber already owns either individually or in the joint name a residential house or a flat, other than ancestral property”, no withdrawal will be permitted. Funds can also be withdrawn for treatment of illnesses like cancer, kidney failure, coronary artery bypass graft, heart valve surgery and paralysis.
Benefits of the National Pension Scheme:
- For the salaried individuals, an investment of up to 10 percent of salary (basic + dearness allowance) is deductible from taxable income under Section 80CCD. Apart from this, an additional investment up to Rs.50,000 is also deductible from taxable income under Section 80CCD (1B).
- Your contribution can either be made directly or through the employer you are working with. In case the investment is routed through the employer, the employer’s contribution to NPS up to 10 percent of basic salary (plus DA) is allowed deduction under Section 80CCD (2).
- If you are self-employed, then an investment up to 20 percent of gross annual income is deductible from taxable income, subject to a limit of Rs 1.5 lakh. This was limited to 10 percent as per the earlier guidelines but was changed in Budget 2017.
- Additionally, an investment up to Rs.50,000 is deductible from taxable income under Section 80CCD (1B) of the Income Tax Act, 1961.
- If you opt for partial withdrawal for specific purposes before turning 60, then 25 percent of the contribution made will be exempted from income tax. Meanwhile, up to 40 percent of the corpus withdrawn in the lump sum is exempt from tax when the subscriber attains the age of 60.