There have been instances recently where TDS (Tax-Deducted at Source) was deducted on withdrawals from National Savings Scheme (NSS) accounts by many senior citizens. This was despite the government in the Budget 2025 and before that announcing TDS exemption on withdrawals from NSS accounts on or after August 29, 2024.

Now, the Central Board of Direct Taxes (CBDT) recently came out with a notification stating no TDS will be deducted on withdrawals from NSS accounts. This will apply to NSS withdrawals made on or after April 4, 2025. Earlier, the tax department had said that senior citizens withdrawing from the NSS would be exempted from TDS, provided the withdrawal is made on or after 29 August 2024.

“In exercise of the powers conferred by sub-section (1F) of section 197A of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby specifies that no deduction of tax shall be made under section 194EE of the Act on payment of the amount referred to in clause (a) of sub-section (2) of section 80CCA, which is withdrawn by an assessee being an individual, on or after the date of publication of this notification in the Official Gazette,” said the CBDT notification dated April 4, 2025.

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What is NSS?

The NSS is a government-backed savings scheme, which offers safe investment options and assured returns. This scheme was launched specifically with the aim of motivating senior citizens to save for the long term.

How was NSS withdrawal taxed till now?

Till now withdrawal from NSS was considered taxable as “income from other sources”. Not only this, TDS was also deducted on withdrawal from NSS, whereas this is not the case on other savings instruments like PPF and others. Due to this, senior citizens were not able to get the full benefit of their own savings.

What changes were made in Budget 2025?

Under Budget 2025, senior citizens have been given tax exemption on withdrawal from NSS accounts, provided the withdrawal is made on or after 29 August 2024. This relief will be applicable especially on those NSS accounts in which interest has stopped now, and whose withdrawal is being done now.

Who will benefit from this tax exemption?

This provision will directly benefit those senior and super-senior citizens, whose NSS accounts are many years old and are no longer getting interest on them. Now they will be able to avoid additional tax burden while withdrawing their deposits.

What else have senior citizens got in Budget 2025?

Not only exemption on NSS withdrawal, the government has also increased the limit of tax deduction on interest income for senior citizens from Rs 50,000 to Rs 1 lakh in Budget 2025. This means that they will now get more tax relief on interest income from bank, post office or other sources.

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SCSS is also an important option under NSS

Senior Citizen Savings Scheme (SCSS) also comes under NSS, which offers high interest rates and quarterly interest payments. This scheme ensures regular income for retired citizens.

NSS vs. Other Investment Options

Senior citizens get tax exemption under Section 80C on investing in NSS. Also, the assured returns and government guarantees make it more reliable than other options like PPF or FD.

Summing up

The announcement of tax exemption on NSS withdrawal made in Budget 2025 was a big benefit for senior citizens. This is not only expected to reduce their tax burden, but they will also be able to take full advantage of their hard-earned money, which will increase financial independence and security in their retirement life.