Wanted to know the taxation on withdrawal of tier 2 nps. My existing corpus in nps tier 2 is zero at present. Today, If I invest Rs 100 and redeem entire corpus for its value of Rs 102 after a month (and my corpus was invested partially in debt and equity), what is my tax liability? 1. STCG debt on Rs 2? 2. STCG equity on Rs 2? 3. Entire corpus of Rs 102 is taxed at my marginal income tax slab rate? Sounds crazy as initial investment of Rs 100 was from my after tax corpus and no income tax benefit is given on investment in tier 2. 4. Just as in case of nps tier 1, 60% of entire corpus of Rs 102 will be tax free and 40% of entire corpus of Rs 102 will be taxed at my marginal tax slab. Kindly be objective and specific while responding
NPS tier II has no tax benefit while investing.
Withdrawals are taxed according to the time at which withdrawal is made. So withdrawals within a year of investment attract short-term capital tax while those after a year of depositing earn long-term capital tax.
https://www.quora.com/Is-NPS-Tier-II-withdrawal-taxed-based-on-entire-corpus-eg-Equity-if-65-in-Scheme-E-or-individual-schemes-eg-Scheme-E-as-per-equity-and-Scheme-C-G-as-per-debt
Above is the link for basis of answer.
Dear sir,
Tier I and Tier II NPS
Tier I
Tier II
Eligibility
Any Indian citizen between 18 & 65 years of age
Members of Tier I only
Lock-in
Till the age of 60 years
Nil
Minimum number of contributions in year
1
Nil, you can choose not to make any contribution in a year
Minimum contribution for account opening
Rs 500
Rs 1,000
Minimum amount for subsequent contribution
Rs 500
Rs 250
Minimum number of annual contributions
1
Not mandatory
Fund management charge
Charges are same for both Tier I and Tier II accounts
Available asset classes
Same for both
Equity (E): Scheme invests predominantly in Equity market instruments.
Corporate Debt (C): Scheme invests in Bonds issued by Public Sector Undertakings (PSUs), Public Financial Institutions (PFIs), Infrastructure Companies and Money Market Instruments
Government Securities (G): Scheme invests in Securities issued by Central Government, State Governments and Money Market Instruments
Alternative Investment Funds (A): In this asset class, investments are being made in instruments like CMBS, REITS, AIFs, etc.
Tax benefits on contribution
Contribution to NPS Tier I qualify for tax deduction under Section 80C up to Rs 1.5 lakh.
Tax deduction is available under Section 80CCD (1B) up to Rs 50,000 in addition to Section 80C benefits.
No tax benefit
Taxation on withdrawal
At maturity, the entire corpus is tax-exempt
The entire corpus can be withdrawn, which is added to income and taxed as per the tax slab one falls in
Hi
Firstly, contribution to Tier II NPS has no tax benefits – you can't claim deductions and on exit, the corpus is taxed. Unlike the Tier I account, there is no lock-in with savings in the Tier II account. You can withdraw from the Tier II account at any time.
For individuals (other than Government employees), there is no lock-in for NPS Tier-II and one can withdraw at any time from the NPS Tier-II account. For such individuals (unlike Government employees), there is no tax deduction available under Section 80C.
Unlike Tier I account, there are no withdrawal restrictions on Tier II account.
A government employee can invest maximum of Rs 1.5 lakh in the Tier-II account of NPS to claim tax benefit under section 80C. Unlike lock-in period till the age of retirement, the investment made in Tier-II account of NPS under section 80C comes with a lock-in period of three years.
NPS Tier II account tax liability is a grey area. There is no clear cut rules defined in NPS structure. Even then you can treat the Tier II account just like Mutual Fund and pay tax accordingly.
The Debt and Equity part should be segregated and taxed accordingly.
long term capital gains tax is not applicable. Tier II withdrawals are taxed as per your slab rate.
Ideally, only the income and not the capital is taxable. In other words if you invested Rs 100 and this becomes Rs 120, only 20 is taxable as income.
Dear Sir,
Hope you are doing well !!
-There is no tax benefit on investment towards Tier II NPS Account. The Tier II is, however, an optional account and one can additionally open it to park savings in it as it has no lock-in period.
-If a Government employee contributes towards Tier-II of NPS, the tax benefit of Section 80C for deduction up to Rs. 1.50 lakh will be available to them provided that there is a lock-in period of 3 years.
-For a non-government individual, the tax benefits are applicable for investments in Tier I account only. The investments in NPS Tier I qualifies for tax benefits under Section 80 CCD (1) Section 80CCD (1B) and Section 80CCD (2) as per the conditions of the Income Tax Act.
After Subscriber attain the age of 60, up to 40 percent of the total corpus withdrawn in lump sum is exempt from tax.
For example: If total corpus at the age of 60 is 10 lakhs, then 40% of the total corpus ie 4 lakhs, you can withdraw without paying any tax. So, if you use 40% of NPS corpus for lump sum withdrawal and remaining 60% for annuity purchase at the time of retirement, you do not pay any tax at that time. Only the annuity income that you receive in the subsequent years will be subject to income tax.
It is advisable to take a phone consultation for detailed discussion.
