How are funds withdrawn from NPS taxed?
How is tax calculated on withdrawal of funds from the National Pension System (NPS) Tier 2 account ? Should I deal with it as capital acquire and calculate taxes on the positive aspects, contemplating it as an fairness mutual fund (since my main contribution is in equities)? Or, ought to I file the tax returns, contemplating it as part of the revenue? Also, do I’ve to pay taxes solely on the curiosity or your entire sum withdrawn? The tax on the invested cash is already thought of within the earlier funding 12 months.
—Name withheld on request
There are not any particular provisions within the Income-tax Act, 1961, governing the taxation of withdrawal from NPS Tier II account. Thus, the taxability of withdrawals from this account would must be analyzed based mostly on common rules of taxation. Divergent views exist on this regard, within the absence of particular provisions.
It is known that funding within the NPS account is within the type of items, whose web asset worth (NAV) varies over a time frame. Hence, there’s a view that on the time of withdrawal, these items are redeemed and therefore the positive aspects/ loss therefrom could also be taxed beneath the pinnacle ‘capital gains’.
It could nonetheless be famous that the items held within the NPS account can’t be thought of because the fairness shares of an organization or the items of an equity-oriented fund and therefore a holding interval of 36 months could also be utilized to find out its tax price. The tax price will depend upon whether or not the items in the end classify as quick time period or long run.
There can be an alternate faculty of thought that claims the withdrawals could also be supplied to tax as peculiar revenue beneath the pinnacle “Income from Other Sources”, to the extent off the differential between the redemption worth and quantity invested (i.e., solely the accretions) although there is no such thing as a provisions for a similar.
Parizad Sirwalla is accomplice and head, world mobility providers, tax, KPMG in India.
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