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.
Last updated Jun 24, 2026
Correct Answer:
Option B —
100%
There has been a significant evolution in the tax treatment of the National Pension Scheme (NPS) under Section 10(12A) of the Income Tax Act:
The 100% Exemption: Currently, when a subscriber reaches the age of 60 or matures the account, they are allowed to withdraw up to 60% of the total accumulated corpus as a lump sum, which is entirely tax-free (100% exempt).
The Annuity Component: The remaining 40% must be utilized for purchasing an annuity (regular pension). This 40% portion is also exempt from tax at the time of conversion/purchase.
Total Result: Since 60% (lump sum) is exempt and 40% (used for annuity) is exempt at the time of closure, the entire amount payable at the time of closure is effectively exempt from tax at that stage. (Note: The subsequent pension received from the annuity will be taxable as per the individual's income slab).
Why other options are incorrect:
A) 30%: This is not a standard exemption limit for NPS closure.
C) 40%: This was the previous exemption limit for the lump-sum withdrawal before it was increased to 60% to make NPS more competitive with EPF.
D) 25%: This refers to the limit for partial withdrawals (under specific conditions like education or marriage) allowed under Section 10(12B), not the final closure.
Answer verified by Quintessence Classes faculty — Karan Nagar, Srinagar.
