Withdrawals from National Pension Scheme are set to become tax-free soon. Finance Minister Nirmala Sitharaman mentioned in her Union Budget 2019 speech that the tax exemption limit on withdrawal will be increased for NPS from 40 per cent to 60 per cent on exit from scheme. This essentially makes the pension scheme tax-free.
The Budget 2019 document read as follows:
In order to give effect to the cabinet decision already taken to incentivise NPS, it is proposed to,-
(i) Increase the limit of exemption from current 40% to 60% of payment on final withdrawal from NPS;
(ii) Allow deduction for employer's contribution upto 14% of salary from current 10%, in case of Central Government employee;
(iii) Allow deduction under section 80C for contribution made to Tier II NPS account by Central Government employees.
The Cabinet had approved an increase in the income tax exemption limit for lump-sum withdrawal on exit from National Pension Scheme (NPS), making the withdrawal from the pension scheme 100 per cent tax free. However, it was never notified after that.
Separately, the Union Budget 2019 document says, "Services by National Pension System (NPS) Trust to its members will be against consideration in the form of administrative fee."
The government also decided to extend the pension benefit to about three crore retail traders and small shopkeepers. "Encouraged by the overwhelming response, the Government of India has decided to extend the pension benefit to about three crore retail traders and small shopkeepers whose annual turnover is less than 1.5 crore under a new Scheme namely Pradhan Mantri Karam Yogi Maandhan Scheme. Enrolment into the Scheme will be kept simple requiring only Aadhaar and a bank account and rest will be on self-declaration," the document mentioned.