On maturity of the National Pension System (NPS) at age 60, up to 60% of the accumulated corpus can be withdrawn as a lump sum, which is completely exempt from tax under Section 10(12A). The remaining 40% must be used to purchase an annuity (monthly pension), which is taxable. This exemption is available under both Old and New Regime.
Tax Treatment at Maturity
- Lump sum withdrawal: Up to 60% of total corpus — fully exempt under Section 10(12A)
- Annuity purchase: Mandatory 40% is used to buy annuity — exempt at purchase stage
- Monthly annuity received: Fully taxable as income in the year of receipt
- Partial withdrawal for specified purposes during working years: Exempt under Section 10(12B)
Contributions During Service
- Employee contribution: Deductible u/s 80CCD(1) up to 10% of salary — only in Old Regime
- Personal additional contribution: 80CCD(1B) up to ₹50,000 — only in Old Regime
- Employer contribution: 80CCD(2) up to 10%/14% of basic — available in BOTH regimes
- New Regime subscribers still benefit from 80CCD(2) and the tax-free 60% at maturity
Early Exit (Before 60)
- If exiting before age 60 with corpus > ₹2.5 lakh: Only 20% can be withdrawn as lump sum (exempt); 80% must go into annuity
- If corpus ≤ ₹2.5 lakh: 100% can be withdrawn — fully exempt
- Annuity received after early exit is taxable in the year of receipt
This guide reflects FY 2025-26 (AY 2026-27) and is for general information. Tax rules and limits change, and how they apply depends on your circumstances. It is not professional tax advice; consult a qualified Chartered Accountant before acting.
