Withdrawal from NPS & Tax Benefits

NPS allows withdrawal of funds from NPS corpus up to some extent. This amount can be withdrawn either partially before its maturity or on its maturity. Mentioned below the details about its withdrawal rules as well as tax benefits thereon:

Partial Withdrawal from NPS & Tax Benefits

NPS allows partial withdrawals for specific purposes like buying home, child's marriage, child's higher education, treatment of critical illnesses, etc. before the subscriber reaches the age of 60. Subscriber can withdraw up to 25% of contributed amount towards Tier I NPS Account after 10 years. Additionally, Subscriber is allowed to withdraw from Tier I NPS account twice after a gap of 5 years after first withdrawal. 25% of the contribution made by a subscriber is exempt from income tax, according to Budget 2017.

Withdrawal on Maturity from NPS & Tax Benefits

On maturity, NPS is also partially tax exempt. NPS is a quasi-EET instrument in India where 40% of the corpus withdrawn in lump sum is exempt from tax when the subscriber attains the age of 60, while 60% of the corpus is taxable. The 40% of the corpus is tax-exempt as it has to be compulsorily used to purchase an annuity. However, income received in the form of annuity is taxable.