NPS scheme: To avail income tax benefits, an investor invests money in various investment tools like insurance, mutual funds, National Pension System or NPS, PPF, Sukanya Samriddhi Yojana, etc. However, due to some negligence in regard to the income tax rules, they fail to get full tax benefit, which they had assumed at the time of investment. Especially, when it comes to government schemes like the NPS scheme, investors need to be extra vigilant about the income tax exemption rules and that too at the time of NPS registration itself.
On income tax rules applied in the NPS scheme, tax expert Sunil Garg said, “An investor gets income tax exemption on the NPS maturity amount. At the time of NPS maturity, an investor gets income tax exemption on 60 per cent of the maturity amount. Rest 40 per cent is not exempted from the income tax as it is used for the pension of the investor.”
Asked about the NPS withdrawal rules, Garg said, “Sometimes an investor withdraws his or her money before the NPS maturity. In that case, the income tax rule applied to the withdrawal will be different. If an investor withdraws from NPS account prematurely, then the income tax act 1961 says that the NPS account holder will get income tax exemption on only 25 per cent of the total NPS withdrawal amount. Rest 75 per cent amount will fall under the purview of income tax liability and one would get his or her NPS premature amount into one’s bank account after the income tax liability cut from one’s net NPS amount.”