The Union Budget has made NPS more attractive for those who are self-employed. The Finance Bill has proposed to extend the benefits of exemption given to salaried individuals, in which they are allowed to claim tax exemption on 40% of the total NPS corpus on withdrawal, to the self-employed as well.
This will come into effect from April 1, 2019.
In the Finance Bill, the government said, “Under the existing provisions of the clause (12A) of section 10 of the Act, an employee contributing to the NPS is allowed an exemption in respect of 40% of the total payable to him on closure of his account or on his opting out. This exemption is not available to non-employee subscribers. In order to provide a level playing field, it is proposed to amend clause (12A) of section 10 to the Act to extend the said benefit to all subscribers. This amendment will take effect, from 1 April 2019 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent assessment years.”
With this, NPS subscribers will no longer have to pay tax on the 40% of the total NPS corpus on maturity. Since such subscribers are allowed to withdraw up to 60% of the total NPS corpus on maturity, effectively, they have to pay tax on 20% of the total NPS corpus. Subscribers have to necessarily annuitise the remaining 40% of the total corpus.
