No Taxes To Move Provident Fund Money To NPS (Pension Account): 10 Facts
If PF withdrawal is before five years, the amount becomes taxable Employees have to approach the recognised PF Fund PF authority may issue cheque/draft in the name of NPS account
The funds transferred from a recognised provident fund (PF) account to a National Pension System (NPS) account will not attract any tax, Pension Fund Regulatory and Development Authority (PFRDA) said in a circular dated March 6. "The amount so transferred from recognised Provident Fund/Superannuation Fund to NPS is not treated as income of the current year and hence not taxable," the pension fund regulator said, while outlining the procedure for transfer. In 2016-17 Budget, the government had announced that the subscribers from recognised Provident Funds and Superannuation Funds would be able to transfer their corpus from PF to NPS without any tax implication. NPS is a defined contribution retirement fund and helps an individual create a retirement corpus.
Here are 10 things to know:
1) The person who wants to transfer his PF fund should have an active NPS Tier 1 account. The account can be either opened through the employer (where NPS is implemented) or through banks/non-banks entities registered as Points-of-Presence or online at NPS Trust website.
2) NPS scheme is structured into two tiers: Tier-I and Tier II accounts. The Tier-I account comes with withdrawal restrictions and is meant for savings towards retirement. Tier-II account is a withdrawable account which can be opened only when there is an active Tier I account in the name of the subscriber.
3) Government/private sector employees have to approach the recognised PF Fund through their current employer and submit a request for transfer of funds to NPS account.
4) The PF authority may issue cheque/draft in the name of NPS account of the subscriber.
5) The pension fund regulator said that the PF authority should be requested to issue a letter to present employer/POP mentioning that the amount is being transferred from the PF fund to be credited to NPS Tier 1 account.
6) According to current tax laws, if the withdrawal from a recognised PF happens after five years of continuous employment, it attracts no tax.
7) In case of employment with different employers, if the PF balance maintained with the old employer is transferred to the PF account of the new employer, it is considered a continuous employment.
8) In case of PF withdrawal before five years, the amount becomes taxable.
(Read: PF Money Withdrawal: Here Are Five Things To Know)
9) NPS or National Pension Scheme has been given a boost in the Budget with Finance Minister Arun Jaitley offering income tax sops on early withdrawal. He said that early withdrawals to the extent of 25 per cent of the contributions from NPS will not attract income tax.
(Also read: Early Withdrawal From NPS Made Tax-Exempt: 10 Things To Know)
10) According to the current tax laws, withdrawals from the NPS are tax-exempt if subscribers withdraw up to 40 per cent of the corpus when they reach 60 years of age. Overall, an NPS subscriber can withdraw up to 60 per cent of the maturity corpus at the age of 60 and the remaining amount has to be converted into annuity.