Amount payable at the time of closure or opting out of National Pension Scheme referred to in section 80CCD shall be exempt to th…

Question

Amount payable at the time of closure or opting out of National Pension Scheme referred to in section 80CCD shall be exempt to the extent of total amount payable:

1. A. 30%
2. B. 100%
3. C. 40% (Correct answer)
4. D. 25%

Correct Answer

Option C — 40%

Detailed Solution & Explanation

The correct answer is 40%.

Key Points

• Under Section 80CCD, when a subscriber closes or opts out of the National Pension Scheme, 40% of the total corpus/amount payable is exempt from tax.
• The remaining 60% is taxable.

Additional Information

• On closure or opting out of the NPS, 40% of the corpus is exempt under section 10(12A); the rest is taxable unless used to buy an annuity.
• Deductions available: 80CCD(1) within the overall 80C limit of ₹1.5 lakh, an extra ₹50,000 under 80CCD(1B), and the employer's contribution under 80CCD(2).
• At superannuation, 60% of the corpus may be withdrawn tax-free and 40% must be annuitised; the annuity is then taxed as income.
• The NPS is regulated by the PFRDA and has Tier-I (retirement, restricted withdrawal) and Tier-II (voluntary, liquid) accounts.