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The capital gains earned on the corpus left with the pension fund manager to avail regular income through Systematic Lumpsum Withdrawal (SLW) is likely to be exempted from any tax, believe pension fund managers.
Just like SWP in mutual funds, PFRDA has introduced SLW, which enable subscribers to continue to remain invested with their lumpsum benefit that they get after attaining retirement to generate regular income till 75 years of age.
Currently, NPS subscribers get lumpsum benefit of 60% of the total accumulated corpus and the remaining amount goes to insurance companies for extending annuity support. While the 60% lumpsum is already tax free, there was a confusion if returns earned on this lumpsum amount on account of SLW will be taxed.
A CEO of pension fund company told Cafemutual there will be no TDs or any tax applicable on amount received through SLW. He said, “After opting for SLW, the remaining corpus will remain invested in NPS as per the scheme choice opted by subscriber and hence can change in value on a day to day basis. On such changes or on the entire SLW amount, there will not be any TDS nor any Tax applicable on amount received through SLW.”
Another CEO of pension fund company said that the NAV of such a corpus can go up and down during the SLW period i.e. 15 years. “If the government levies tax on capital gains, they will have to make provision for set off against losses. And in my view, there is no such proposal with the government. Hence, SLM will be completely tax free in the hands of investors making it better alternative than SWP in mutual funds,” he added.
Through SLW, NPS subscribers can make withdrawal every month, quarter, half yearly or annually with a single application. However, subscribers will not be able to make partial withdrawal if they opt for this.
SLW can also be set up on Tier II accounts at any time. There is no need to wait till 60 years to generate regular income in Tier II NPS accounts. However, this benefit is not applicable on death of NPS subscribers.