National Pension System rules (expectations from Budget 2023): Partial withdrawal of up to 25% of the total amount from the NPS account is exempted from tax. However, this facility is not yet available to non-employee NPS subscribers.
According to ICAI, the Finance Act 2018 extended the tax exemption benefit on partial withdrawal to all subscribers. But a necessary amendment in the Income Tax Act is yet to be made to provide tax exemption in case of partial withdrawal by non-employee subscribers. Therefore, as of now, only employees contributing to NPS enjoy this benefit. Non-employee subscribers of NPS are yet to get this benefit.
ICAI has urged the Government to make necessary amendments in Section 10 (12B) of the Act through Budget 2023 to provide a level playing field to both employee and non-employee subscribers of NPS.
“It is suggested that the amendment as made in section 10(12A) may also be made in section 10(12B) thereby extending the benefit of exemption in case of partial withdrawal to non-employee subscribers as well. The said amendment would also be in line with the intention of the legislature to provide a level playing field to both types of subscribers to NPS,” ICAI said in its Pre Budget Memorandum 2023.
Why an amendment is necessary
According to ICAI, Section 10(12A) provides for an exemption of up to 60% of the total amount payable to an employee contributing to the NPS on the closure of his account or on his opting out of the scheme. In cases of partial withdrawal from NPS, section 10(12B) provides for an exemption of up to 25% of contributions made by an employee. Before 2018, these exemptions were not available to non-employee assessees contributing to NPS.
Through The Finance Act 2018, the Government extended the benefit of exemption under section 10(12A) to all assessees, in order to provide a level playing field to both employee and non-employee assessee subscribers.
“However, till now, the Act does not contain a similar amendment in respect of benefit of exemption under section 10(12B), consequent to which such benefit of exemption in case of partial withdrawal continues to be restricted to employees alone,” ICAI said.
“To provide equity between the employee and non-employee subscriber, similar amendment may be made in section 10(12B) to extend the benefit available thereunder to non-employee subscribers,” it added.
