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Are my NPS returns taxable?

By Finserv MARKETS - Aug 1,2019
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Are my NPS returns taxable?


When we think of saving and investing for the future, and specifically retirement, we look for investment, security and tax-saving investments. Luckily, there are a plethora of options available. While making a choice among these options, it is imperative to align the scheme with the goals of investment and a regular income for the golden years. National Pension Scheme or NPS is one such scheme that acts as both an investment and a pension plan. This government-sponsored pension scheme was initiated in January 2004 for government employees, and later on, opened to all in 2009. This means that any citizen of India, irrespective of their residential status can subscribe to the scheme and avail benefits.

So, whether you are resident in the country or a non-resident Indian (NRI), this scheme caters to your dual retirement objective of regular pension as well as security of investment. You just need to make sure you comply with the Know Your Customer (KYC) norms.

Under the National Pensions Scheme, as a subscriber, you can contribute regularly to a pension account through the duration of your professional work life. Later on, you can withdraw a part of the corpus in a lump sum at retirement. You have to use the remaining corpus to buy an annuity to secure a regular income.

With a minimum contribution of Rs 1,000 every year in your Tier-I account in a financial year, you can inculcate the habit of saving for retirement through online investment.
As mentioned before, we are particularly interested in tax-saving investments because this parameter becomes crucial when saving money for the future. National Pension Scheme delivers on this aspect too. Let’s look at the tax benefits under the NPS:

First of all, let’s consider the salaried person. An employee’s own contribution is eligible for a tax deduction under Section 80CCD(1) of the Income Tax Act. The maximum deduction you can claim is 10% of the salary (basic plus DA). For the self-employed individual, contributions up to 20% of the Gross Income is deductible from the taxable income under section 80CCD(1) of the Income Tax Act, subject to a ceiling of Rs. 1.50 lakh under Section 80CCE.

In totality, therefore, this exemption comes with an overall ceiling of Rs 1.5 lakh allowed under Section 80C and Section 80CCE.

In addition to this, there’s an exclusive tax benefit to all NPS subscribers under Section 80CCD(1B). For both salaried and self-employed individuals, an additional deduction for investment up to Rs.50,000 has been provided under section 80CCD(1B) of the Income Tax Act, 1961 which is over and above the ceiling of Rs.1.5 lakh. Therefore, the total deduction that can be claimed for own contribution to NPS can go up to Rs.2 lakh.

This was all about the contributions. But what about the returns under NPS? As opposed to what you might believe, it isn’t possible to withdraw the entire corpus of the NPS funds after retirement. Instead, you are compulsorily required to keep aside at least 40% of the corpus to receive a regular pension from a PFRDA-registered insurance firm. What about the remaining 60%?

Till last year, only 40% of this withdrawn amount was treated as tax-free investment when withdrawn, while the remaining 20% was taxed. However, now total 60% is tax-free.
The government has recently made the NPS more tax-friendly by offering complete tax exemption to the 60% of the corpus that an investor can withdraw on maturity. It was lauded as a positive step to bring the National Pension Scheme at par with other retirement products.

Let’s explain how this works, with an example: if the total corpus you’ve accumulated by the age of 60 amounts to Rs 10 lakhs, then you can withdraw 6 lakhs, which is 60% of this corpus without paying any tax. The remaining 40% is to be used to invest in an annuity which is taxable as per the income tax slab.

NPS brings the benefit of tax-free investment even if you wish to make a partial withdrawal before the age of retirement. A subscriber can partially withdraw from NPS tier I account before the age of 60 for specified purposes. The amount withdrawn up to 25% of subscriber contribution is exempt from tax.

You can opt to invest in a National Pension Scheme through Finserv MARKETS for a financially secure life, post-retirement. You can benefit from 100% transparency and a host of tax benefits. Choosing Finserv MARKETS means there are no branch visits involved and it is a completely online investment. With the entire process online, rest assured that the NPS subscription process will be hassle-free.

“Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. We understand that every individual is different and thus when you plan to achieve your life goals or shop for the gadget of your dreams, we believe in helping you Make it Happen in a few simple clicks. Simple and fast loan application processes, seamless, hassle-free claim-settlements, no cost EMIs, 4 hours product delivery and numerous other benefits. Loans, Insurance, Investment and an exclusive EMI store, all under one roof – anytime, anywhere”!


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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522