National Pension System: Lesser-known income tax, GST benefit that NPS scheme beneficiaries must know

• February 12, 2021
• CA Chandan Agarwal's Office

NPS Scheme: National Pension System (NPS) is one of the lowest cost pension schemes globally and it can be concluded that investing in NPS not only helps to reduce taxable income but at the same time enables building a corpus that is essential for leading a dignified post-retirement life. However, among many NPS Scheme beneficiaries, it is well known that one can claim income tax benefit on up to Rs 2 lakh investment in the NPS account in a particular financial year (Rs 1.5 lakh under Section 80C and Rs 50,000 under Section 80CCD 1(B). However, there is income tax benefit on partial withdrawal and GST exemption on annuity buying too.

Speaking on the income tax benefit on partial NPS withdrawal SEBI registered tax and investment expert Manikaran Singhal said, “NPS Scheme allows partial withdrawal to an NPS Account holder. As per the NPS Withdrawal Rules, one can withdraw up to 25 per cent of one’s net contribution which is 100 per cent income tax exempted under Section 12B of the Income Tax Act, 1961.”

Singhal said that under the NPS Scheme, an investor is allowed partial withdrawal on three occasions in the whole investment period and there should be a gap of 5 years between the two withdrawals.

Putting NPS Scheme in the EEE category; another SEBI registered tax and investment expert Jitendra Solanki said, “NPS Scheme is completely income tax exempted as the maximum 60 per cent withdrawal money post-retirement is 100 per cent income tax exempted and the 40 per cent binding on buying the annuity is also exempted from income tax outgo. In fact, it’s the annuity return on one’s money which is taxed.”

Solanki said that the Goods and Services Tax (GST) is levied 1.8 per cent on the annuity buying but in the case of NPS Scheme, no GST is levied on annuity buying and said, “Goods and Service Tax (currently 1.8 per cent) otherwise payable while purchasing an annuity product/scheme, is not levied when annuity plan is purchase through NPS.”

Source: https://www.zeebiz.com/personal-finance/income-tax/news-national-pension-system-lesser-known-income-tax-gst-benefit-that-nps-scheme-beneficiaries-must-know-149189