Tax on nps corpus

60% of your Tier 1 lump sum is exempt; ~40% is taxable but likely absorbed by your basic exemption limit. Recommend computing exact figures with your CA at return-filing time factoring in your other FY 2026-27 income.

Post exact figures and other details. 

Post exact figures and other details. 

Post exact figures and other details. 

NPS taxation at maturity follows the 60:40 RULE under the current regime.

At the time of normal maturity (age 60 or retirement):

60% of the corpus can be withdrawn as a LUMP SUM. This is entirely exempt from tax under Section 10(12A) of the Income Tax Act. No TDS, no reporting as income.

40% of the corpus MUST be used to purchase an annuity from a PFRDA-approved life insurer. The annuity purchase amount itself is not taxed at the time of purchase. However, the MONTHLY ANNUITY INCOME you receive from the annuity is taxed as income from other sources (under the applicable slab rate) in each year it is received.

Early withdrawal (partial or before age 60): partial withdrawals for specific purposes (housing, education, illness) up to 25% of your own contributions are exempt under Section 10(12B). If you withdraw the entire corpus before age 60, only 40% can be taken as lump sum (also exempt), and 80% must go to annuity.

For government employees (CG/SG): the rules are broadly similar since the Income Tax Act 2025 aligned treatment.

Key point: the CORPUS GROWTH inside NPS (employer contributions, government contributions, investment returns) is all tax-deferred until withdrawal. Only the annuity income (post-purchase) is taxable.

For the full NPS withdrawal tax treatment and how to report it in ITR-2, this [income tax filing guide for AY 2026-27](https://taxgarden.in/blog/itr-filing-guide-ay-2026-27-new-forms-deadlines) covers the Schedule S and other source income sections.

The ₹8 lakh exit limit does not, by itself, make the withdrawal tax-free. For a non-government NPS subscriber, the amount received on closure of the Tier I account is generally exempt only up to 60% of the total corpus; the remaining portion is ordinarily taxable. The small-corpus rule may permit a full lump-sum exit, but permission to withdraw the full amount is different from tax exemption. The exact treatment depends on the applicable exit category and the rules in force when you exit. Tier II withdrawal is generally taxable; its tax treatment is separate from Tier I.

The pension of ₹10,16,000 expected in FY 2026–27 is also separate from the NPS withdrawal. If this is an annuity pension, it is generally taxable as income in the year received. Please confirm whether ₹7 lakh is the Tier I corpus alone or includes Tier II, and whether the ₹10,16,000 is the annual annuity amount, since these details affect the computation.

NPS exit and taxability review can be built into the retirement-income workflow alongside pension projections and return reporting. Manual tracking of corpus components, exit limits and tax treatment is difficult; automation reduces repetitive work while professional judgment remains in control. Our platform brings together 2,000+ AI agents and 650+ integrations for relevant tax, accounting and compliance workflows. For a walkthrough tailored to your practice, connect with us on WhatsApp at https://wa.me/message/3HVOZ7HIY4ESC1.