The National Pension System (NPS) will become more tax-friendly for the self-employed as finance minister Arun Jaitley has proposed to extend the benefit of tax-free withdrawal of 40% of the amount payable at the time of closure of account. This new proposal in Budget 2018 will bring non-salaried subscribers at par with salaried subscribers. In fact, since 2015, the government has been taking measures to make the pension product more tax-friendly. At present, under the existing provisions of clause (12A) of Section 10 of the Income Tax Act, an employee contributing to the NPS is allowed an exemption of 40% of the total amount payable to him on closure of his account or opting out. Non-employee subscribers or self-employed, however, do not get this tax exemption. \u201cIn order to provide a level-playing field, it is proposed to amend clause (12A) of Section 10 of the Act to extend the said benefit to all subscribers,\u201d the Finance Bill underlines. In 2016, the finance minister had made withdrawals from NPS on maturity tax-free for up to 40% of the total corpus accumulated for salaried employees. Currently, NPS enjoys partial tax exemption on the maturity amount while the annuities (pension) post retirement remains fully taxable in the year of receipt. An individual has to pay tax on 20% of the maturity corpus. Other savings schemes such as public provident fund (PPF) and employees' provident fund (EPF), however, enjoy tax benefits in all the three stages: contribution, interest earned and withdrawal. After maturity of the account at the age of 60 years and above, a subscriber can withdraw up to 60% of the maturity corpus. While 40% of the corpus on maturity is tax-exempt for salaried, the balance is still taxable for both salaried and self-employed. Now, that disparity will be bridged once the Finance Bill becomes an Act. The annuity amount which is received from the 40% of the remaining corpus is fully taxable in the year of receipt as income from other sources. Benefits on investments Investments made in NPS offer three types of tax benefits under different sections of the I-T Act\u2014Section 80CCD (1), Section 80CCD (1B), and Section 80CCD (2). In the first one, investment up to Rs\u00a01.5 lakh is eligible for deduction, which also includes other investment tax breaks such as life insurance premium, Public Provident Fund, Employees\u2019 Provident Fund, etc. Under Section 80CCD (1B), introduced by Jailtley in 2015-16 Budget, a subscriber can claim additional tax benefit of Rs 50,000 by investing in NPS. Also, under Section 80CCD(2), employer\u2019s contribution up to 10% of basic salary along with dearness allowance of the employee is eligible for tax deduction. This deduction does not have a monetary restriction, but the total deduction claimed for amount contributed by the employer should not exceed 10% of one\u2019s salary. Employers can make this contribution apart from contributing to EPF. However, this will reduce one\u2019s take-home pay, but will save on tax and help create a sizeable retirement corpus for the employee. Last year, the Budget made tax-free partial withdrawal of up to 25% of contributions for certain specified circumstances after 10 years of being in the scheme. In order to increase the pension coverage, Pension Fund Regulatory and Development Authority (PFRDA), the pension fund regulator, has increased the maximum age for joining NPS to 65 years from 60 years for private sector and corporate models. As more and more people are working beyond the age of 60 because of better healthcare facilities and more work opportunities in the private sector or are self-employment, the move to increase the age limit will help people save when they work and earn pension after retirement. The annuity rates at an older age are better than that at the age of 60 years. The pension fund regulator has also taken a host of consumer-friendly initiatives like more choice for life cycle funds as per one\u2019s risk appetite and has appointed a second record keeping agency.