I obtained a sum of ₹200,584 on withdrawal of the whole amassed corpus from my tier-1 account of the National Pension System (NPS). The quantity was withdrawn in lump sum with none annuity being bought on 22 April 2021.
Is withdrawal of the amassed corpus of as much as ₹2 lakh completely tax free? Am I eligible for any tax exemption? If not, what’s my tax legal responsibility?
—Name withheld on request
As per the provisions of part 10(12A) of the Income-tax Act, 1961, any withdrawal from the NPS Trust is exempt as much as 60% of the whole quantity payable on the time of closure of the account or on opting out of the pension scheme.
Based on the restricted info of the case, it’s presumed that you’ve got withdrawn the accumulations below NPS tier-I account on the time of superannuation or after attaining 60 years of age. Thus, 60% of the whole quantity payable below NPS scheme could be thought-about as tax free in your palms. The steadiness 40% of the quantity shall be thought-about as taxable earnings in your palms on the slab charges relevant to you for FY 2021-22.
I obtained ₹7 lakh as becoming a member of bonus with a 3 12 months lock-in interval once I took up employment with a multinational firm (MNC). The firm even deducted tax at supply on this bonus quantity in March 2021.
However, I made a decision to stop the MNC in February 2022 and returned the whole bonus quantity to the agency. Can I now declare the cash paid as earnings tax on the bonus?
—Saransh Nagaich
We perceive that you simply had obtained the becoming a member of bonus from the corporate in FY 2020-21 and accordingly applicable taxes have been deducted by the corporate on the identical. Further, on the time of leaving the corporate in FY 2021-22, you had returned the whole becoming a member of bonus quantity on account of non-completion of the lock-in interval.
As per the provisions of the Income-tax Act, 1961, the becoming a member of bonus obtained by you in respect of your employment is taxable as wage earnings within the 12 months of receipt, and accordingly the identical has accurately been taxed in FY 2020-21.
However, in case such a bonus is returned, there isn’t a particular provision within the Act which permits for any discount or deduction from the wage earnings.
Generally, the place the requirement to return such bonus arises, foundation the contractual phrases agreed between employer and worker for non-fulfilment of situations by the worker, there’s a view that it isn’t an over-riding title on the earnings however within the nature of a penalty for non-fulfilment of said phrases. Hence, no deduction needs to be obtainable from the taxable earnings on this regard and the tax already paid on bonus earnings shouldn’t be eligible for refund.
The tax implications would nonetheless rely on the phrases of the contract, settlement between employer and worker, firm coverage and detailed analysis of the precise info of the case.
Parizad Sirwalla is accomplice and head, world mobility providers, tax, KPMG in India.
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