You Can Open NPS Independently To Avail Of Extra Benefit Of Rs 50,000 Under Section 80CCD (1B)

I have provident fund, gratuity and superannuation components as part of my salary. I requested my company to give me the option to opt for better and tax-efficient product, such as National Pension System (NPS) in lieu of these three. My company has, however, responded that PF, gratuity and superannuation are mandatory products and no change can be done in that. There is a one-time option where Employees’ Provident Fund (EPF) balance can be transferred to NPS and the same will not be taxable. Should I go for it?

Answer: Yes, your company is right. It is at the discretion of the private sector company, whether to opt for NPS for its employees or not. The choice made by the employer is applicable to all the employees.  

However, while continuing to contribute to your provident fund account, you can still open an NPS account by yourself without any assistance or permission from your employer and avail an additional tax benefit of Rs. 50,000 under Section 80CCD (1B) over and above the Rs. 1.5 lakh available to you under Section 80C for various items, including your contribution to EPF.  

As far as exercising the option to transfer the balance from your EPF to NPS is concerned, please do not do that even if it does not have any tax implication at present.  

At present, the entire corpus of EPF is tax-exempt, but the same does not apply to NPS, where only 60 per cent is exempt and with the remaining 40 per cent, you have to mandatorily buy an annuity from a life insurance company at the time of your retirement.  

The annuity as and when received, becomes taxable in your hands, thus effectively making 40 per cent of the accumulated balance in your NPS taxable in your hands in a staggered manner.

Can a senior citizen claim deduction for savings bank interest under Section 80TTA and for accrued interest in National Savings Certificate (NSC) under Section 80TTB of the Income-tax Act, 1961?

Answer: The deduction of up to Rs. 50,000 under Section 80TTB is available to a resident senior citizen in respect of interest from banks and/or post offices and credit cooperative bank, be it for fixed deposit (FD), recurring deposit (RD) or saving bank interest.  

This deduction is not available for interest earned on NSC. One cannot claim the deductions under Section 80 TTA and 80TTB at the same time.  

I am a non-resident Indian (NRI) and have an NRI Portfolio Investment Scheme (PIS) account with a bank. Is there any provision for tax deduction at source (TDS) on sale transaction of shares for an NRE PIS account? I understand that the all the income of NRE accounts are exempt. In case TDS is applicable, what is the rate of TDS?

Answer: Your impression that all income from investments made through NRE accounts is not taxable is not correct. What is exempt for an NRI is any interest credited in the NRE bank account and not all the income which an NRI earns from India. So, all the other incomes arising to an NRI from India are taxable in India. So, the profits which you earn on NRI PIS account is taxable in India and subject to TDS. The tax to be deducted on such income would depend on the amount which is taxable. Since PIS is applicable for shares to be purchased and sold on recognised stock exchanges in India, tax at the rate of 15 per cent will be deducted if the shares have been held for less than 12 months. In respect of shares sold after 12 months, tax will be deducted at 10 per cent.

Balwant Jain is a tax and investment expert

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