Union Budget 2019 India: Both new and existing investors of NPS were keenly watching the Union Minister of Finance Nirmala Sitharaman Budget 2019 speech for her to propose that the withdrawals from the scheme on maturity will be tax exempt. However, there was no mention in the speech but the Budget documents state that “With a view to enable the pensioner to have more disposable funds, it is proposed to amend the said section so as to increase the said exemption from forty per cent. to sixty per cent of the total amount payable to the person at the time of closure or his opting out of the scheme.
This means, the 60 per cent of corpus in the hands of the NPS subscriber in the year of withdrawal becomes tax-free. This demand was loan awaited by the NPS subscribers and potential investors to the scheme. The annuity however, remains taxable as per one’s income slab.
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Although NPS has its unique advantage of being the lowest cost retirement focused investment, the taxation of the corpus remained a hindrance for many potential investors of the scheme.
Currently, one can withdraw a maximum of 60 per cent of the corpus on maturity i.e. at age 60. On the balance, NPS subscriber has to compulsorily buy an annuity from a life insurance company. Of the 60 per cent withdrawal amount, only 40 per cent is tax-exempt while the balance 20 per cent becomes taxable in the year of receipt.
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However, in December 2018, the Union Cabinet had approved that the entire 60 per cent that can be withdrawn on maturity will be tax-free. So, instead of partial taxation on the corpus on maturity, the entire withdrawn amount of the corpus was proposed to be tax-exempt. As far as maturity corpus was concerned, this Cabinet move proposed to make NPS a EEE investment, the annuity i.e pension on the balance 40 per cent was, however, subject to tax as per one’s income slab in the year of receipt.
The cabinet decision still remained in abeyance as it was to be notified by the government. Budget 2019 proposal has cleared the air and the move will make NPS EEE as proposed by the Union Cabinet.
