How to Tax accounts in the National Pension Scheme 

0
39

To discuss the tax rules, firstly we have to discuss the Tier II account under the National Pension System (NPS), lets quickly address the kinds of accounts under NPS. One can have two sorts of accounts under NPS. First is the Tier I account, which is the primary account and is additionally called a pension account. The second is called Tier II account, which resembles your savings account where you can deposit and withdraw cash as and when you need. You can likewise move cash from the Tier II account to the Tier I account.

Even though tax benefits for contributing to the Tier I NPS account is accessible to all subscribers, tax benefits in regard of the Tier II account are accessible just to the Central government employees with a lock-in period of three years. In this article, I wish to clarify how the withdrawal from the Tier II account ought to be burdened.

Section 10 (12A) of the Income Tax Act excludes up to 60% of the sum withdrawn on the closure of the account or at the hour of opting out scheme alluded to in Section 80CCD. Moreover, Section 10 (12B) absolves up to 25% of the contribution made by an employee on partial withdrawal from the scheme as refers to Section 80CCD. There is no direct provision for taxation of withdrawal of Tier II account because it is strictly stated in the income tax act. The tax laws can’t ponder and accommodate all the potential circumstances. In this way, such a circumstance ought to be perceived and chosen intelligently and with good judgment. The lawmakers would not have contemplated taxing a sum at the hour of withdrawal if no tax benefits have ever been claimed at the time of deposits/investment of such money. The normal withdrawals from your bank accounts will resemble the withdrawals from the Tier II account which are not taxed but to the degree of interest credited in the account.

Because of the reasons clarified above, the solid sentiment that by no imagination the whole cash on withdrawal from the Tier II account can be taxed. What can be taxed logically is appreciation. Since the investment made in the Tier II account doesn’t consist of fixed rate of return like fixed deposits, bonds or debentures, the appreciation can’t be taxed under the head “Income from other sources”.

What is expressed here isn’t the legal provision without a specific provision in the Income Tax Act, but it is the sentiment shown up by applying good judgment and logic and maybe acknowledged appropriately. Considering the disarray encompassing tax on withdrawal for the tier II account, the government should preferably a legal position clear as quickly as time permits. This will assist numerous individuals with taking the choice to profit the advantage of the ease of investment.

LEAVE A REPLY

Please enter your comment!
Please enter your name here