Are NPS returns and maturity amounts taxable?

The National Pension System (NPS) is an optional retirement planning scheme available to Indian citizens. The Government of India launched this scheme in January 2004 to assist government employees in saving for their retirement. However, the NPS scheme was opened to all sections in 2009.

You can invest in the NPS to build a corpus and ensure a steady income stream after retirement. By investing in NPS, you can also receive certain tax benefits under Section 80C of the Income Tax Act of 1961. However, many people are sceptical of the tax breaks available on NPS investments and returns.

Let's get started with what NPS is first.

What is NPS?

The National Pension System (NPS) is a voluntary, defined contribution retirement savings scheme that enables subscribers to make the best decisions for their future by making systematic savings throughout their working lives. The NPS aims to instil in citizens the habit of saving for retirement. It is an attempt to find a long-term solution to the problem of providing adequate retirement income to every Indian citizen.

Tax Provisions on NPS

Tax deductions of up to ₹2 lakhs every year can be claimed upon investment in the National Pension Scheme. NPS returns too are tax-free for investors because they fall under the EEE category investment plan.

To be eligible for the EEE category, an investment instrument must meet the following criteria. ‌

1. Tax deductions should be available for the amount invested.

2. The income generated by the investment should be exempt from taxation. ‌

3. On maturity proceeds, no tax should be levied.

There is, however, a small catch. Existing NPS rules allow for the withdrawal of up to 60% of the accumulated corpus at maturity. The remainder is invested in annuities to provide you with a steady stream of income after you retire. While there is no tax on money withdrawn at maturity, money received as an annuity after retirement is added to your taxable income.

For example, if the total accumulated corpus at maturity is ten lakhs, you can withdraw up to 60% of that amount, or six lakhs, as non-taxable income. The remaining 40%, or 4 lakhs, would be used to provide you with annuity income, which could be taxed.

To conclude, NPS investments along with maturity benefits are non taxable.

How can PensionBox help?

PensionBox allows you to create personalised retirement plans. We assist you in developing a strategy first, tracking your pension savings such as PF, and assisting with very flexible investments in the National Pension Scheme and other products. PensionBox makes it easy to plan, track, and invest for a secure retirement.

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