Payment from NPS Trust to an employee on closure of his account or on his opting out of the pension scheme exempt to the extent of 40% of such payment [Section 10(12A)]
Effective from: A.Y.2017-18
(i) Currently, under the Income-tax Act, 1961, the tax treatment for the National Pension System (NPS) referred to in section 80CCD is Exempt, Exempt and Tax (EET). This implies that –
(1) the monthly/periodic contributions during the pension accumulation phase are allowed as deduction from income for tax purposes;
(2) the returns generated on these contributions during the accumulation phase are also exempt from tax;
(3) However, the terminal benefits on exit or superannuation, in the form of lump sum withdrawals, are taxable in the hands of the individual subscriber or his nominee in the year of receipt of such amounts.
(ii) As per section 80CCD, any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme is chargeable to tax.
(iii) New clause (12A) has been inserted in section 10 to provide that any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 40% of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax.
(iv) However, the whole amount received by the nominee, on death of the assessee shall be exempt from tax.