Active Stocks
Tue Mar 19 2024 15:01:05
  1. Tata Consultancy Services share price
  2. 3,985.40 -3.84%
  1. Tata Steel share price
  2. 149.25 -0.23%
  1. Bharti Airtel share price
  2. 1,229.90 0.40%
  1. Power Grid Corporation Of India share price
  2. 259.65 -2.02%
  1. ITC share price
  2. 409.50 -1.89%
Business News/ Money / Personal-finance/  Q&A: Only 40% of NPS corpus will be tax-exempt at time of withdrawal
BackBack

Q&A: Only 40% of NPS corpus will be tax-exempt at time of withdrawal

In respect of your query on NPS withdrawal, 40% of the amount of accumulated corpus paid to you on closure can be claimed as tax-exempt under the current tax law

iStockphotoPremium
iStockphoto

How are annuities taxed in India? I have invested in National Pension System (NPS). What will be my tax liability? How is Public Provident Fund (PPF) taxed?

—Kaushal Bani

Any annuity or pension received by you from your employer ( or on behalf of the employer) is taxable as income from salary. Any other annuities earned by you or family pension earned by your family from your employer (in the event of your death) are taxable as “income from other sources" at the slab rates applicable to you.

In respect of your query on NPS withdrawal, 40% of the amount of accumulated corpus paid to you on closure can be claimed as tax-exempt under the current tax law. The remainder would be treated as taxable unless reinvested in purchasing an annuity plan. The annuities received from such plans will be taxable as income from other sources at slab rates applicable to you.

A partial NPS withdrawal (prior to the age of superannuation for specified reasons such as purchase of a house, child’s marriage or higher education) can be claimed exempt up to 25% of the contributions made by you.

The withdrawal of PPF contributions (both principal and interest) is completely exempt from taxes.

I bought a property in 2009 for Rs50 lakh. I gifted it to my wife in June 2017. She wants to sell it and buy a new property for Rs3 crore. Will she have to pay long-term capital gains (LTCG) tax? Should she claim Section 54 benefit or should I claim it due to the clubbing provision? Who should accept the sale proceeds of the flat?

—Name withheld on request

The sale of a house property triggers taxes on the resultant capital gains. If you transferred the house property to your spouse without adequate consideration, you will still be considered the “deemed owner" under the Indian tax laws and the gains from the asset will be clubbed with your income. So, as a deemed owner, you will be liable to pay tax on the gains arising from the sale, irrespective of who accepts the sales proceeds.

As the house property was held by you, followed by your wife, for more than 24 months cumulatively, the gains, if any, would be taxable as LTCG, which is computed as the difference between net sale proceeds and the indexed cost of acquisition of the house property. Indexation refers to adjusting the cost of the asset based on the cost inflation index (CII) published by the Income tax department for the financial year (FY) of purchase and FY of sale.

An exemption can usually be claimed under Section 54 of the Act, if the LTCG is reinvested in one new residential property in India within the specified time frames. There are judicial precedents where the claim for tax exemption has been permitted to the “deemed owner" where the new property is also owned by the “deemed owner" in whose hands capital gains have been taxed. However, such a claim for tax exemption may be disputed by the tax authority.

Parizad Sirwalla is partner and head, global mobility services, tax, KPMG in India. Queries and views at mintmoney@livemint.com

Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!

Catch all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less
Published: 08 May 2018, 09:25 AM IST
Next Story footLogo
Recommended For You
Switch to the Mint app for fast and personalized news - Get App