Extend the Benefit of Tax-Free Withdrawal from NPS to Non-Employee Subscribers Under Section 10(12A)

The National Pension System (NPS) is a government-backed pension scheme that allows individuals to contribute towards their retirement savin...

The National Pension System (NPS) is a government-backed pension scheme that allows individuals to contribute towards their retirement savings. Section 10(12A) of the Income Tax Act provides for an exemption of up to 60% of the total amount payable to an employee contributing to the NPS on the closure of their account or upon opting out of the scheme. Additionally, Section 10(12B) provides for an exemption of up to 25% of contributions made by an employee in cases of partial withdrawal from NPS.

 

 However, these exemptions were not available to non-employee assessees contributing to NPS. In order to provide a level playing field for both employee and non-employee assessees, the Finance Act, 2018 extended the benefit of exemption under Section 10(12A) to all assessees. However, the Act does not contain a similar amendment in respect of the benefit of exemption under Section 10(12B). As a result, the benefit of exemption in case of partial withdrawal continues to be restricted to employees alone.

To provide equity between employee and non-employee subscribers, it is suggested that a similar amendment be made in Section 10(12B) to extend the benefit available thereunder to non-employee subscribers. This will be in line with the intention of the legislature to provide a level playing field for both types of subscribers to NPS.

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