Hello, Can someone explain if the annuity from NPS after age 60 is fully taxable under the new tax regime 2025, or is there any relief on it?
Is NPS Annuity Taxable After 60 in New Tax Regime 2025?
Yes, it is taxable. As per new tax regime 2025, the annuity income is added to your total income and taxed according to your slab rate. The government treats it justike salary or other pension income.
Points to Know
- 60% withdrawal is tax free at retirement.
Example: If your NPS corpus is Rs. 50 lakh, you can withdraw Rs. 30 lakh lump sum without any tax.
- 40% will be sent into annuity as it is compulsory to do, you have to buy an annuity plan with atleast 40% of the corpus.
- Also, the annuity payouts are taxable.
- Even in the new regime, annuity is fully taxable. The only difference is that you cannot claim deductions like 80C, 80CCD etc.
Example
Suppose:
NPS Corpus at 60 = Rs. 40 lakh
You withdraw 60% = Rs. 24 lakh (tax-free)
Annuity purchase = Rs. 16 lakh
Annual annuity = Rs. 1.2 lakh
This Rs. 1.2 lakh will be added to your income in ITR and taxed as per the slab you fall under in the new regime.
NPS Tax Treatment After 60 (New Regime 2025)
| Component | Tax Treatment (New Regime 2025) |
|---|---|
| Lump sum withdrawal (up to 60%) | Fully Tax-Free |
| Compulsory annuity purchase (40%) | Taxable when pension is paid |
| Pension/Annuity income | Taxable as per slab rate |
| Maturity amount if 100% withdrawn* | Not allowed (except terminal illness or rules relaxation) |
How does the Unified Pension Scheme (UPS) tax treatment compare to NPS in 2025?
Look, if you’re a government employee trying to figure out whether to stick with NPS or jump to this new UPS thing, I totally get the confusion. The whole tax situation has changed, and nobody’s explaining it in normal human language.
Here’s What We’re Actually Dealing With
NPS: You know this one it’s where your retirement money goes on a wild ride with the stock market. You put in 10% of your paycheck, government matches with 14%. When you turn 60, you can cash out 60% of whatever you’ve managed to pile up. The rest becomes your monthly pension.
UPS: This is the government’s latest attempt at fixing things, starting in April. They’re promising you’ll get exactly half of your average salary as pension no market drama. Even if you were making terrible money, they guarantee at least ₹10,000 a month. You still pay 10%, but they’re bumping their contribution to 18.5%.
The Tax Mess Explained
While You’re Working
With NPS: Your 10% contribution used to give you nice tax breaks. Not anymore under this new regime you get absolutely nothing. The government chips in 14%, but here’s the catch only 10% of your basic pay plus allowances actually helps reduce your taxes. That extra 4%. You’re paying tax on it.
Real example: Making ₹50,000 a month. Your ₹5,000 contribution does zero for your tax bill now. Government adds ₹7,000, but only ₹5,000 of that actually helps you pay less tax.
With UPS: Same story your 10% gives you no tax relief whatsoever. Government’s now putting in 18.5%, but that 10% tax free rule still applies. So you’re actually getting taxed on 8.5% of their contribution.
Same salary example: Your ₹5,000 still does nothing for taxes. Government tosses in ₹9,250, but only ₹5,000 of that actually does you any good when tax time rolls around..
When You Finally Retire
NPS: Whatever you’ve managed to build up, take 60% completely tax-free. Built up ₹50 lakhs over your career. Walk away with ₹30 lakhs and the tax department can’t say a word.
UPS: You get a lump sum based on how long you worked also completely tax-free. Put in 25 years earning ₹50,000. Expect roughly ₹12.5 lakhs that’s yours to keep.
Your Monthly Pension
NPS: Whatever monthly amount you get from the annuity you buy with the remaining 40% that’s regular taxable income.
₹50 lakh corpus means ₹20 lakhs buys the annuity, giving you maybe ₹1.2 lakhs yearly. Every rupee gets taxed like salary.
UPS: That guaranteed pension they promised you? Gets taxed just like your regular paycheck no breaks, no special treatment.
₹50,000 average pay means ₹25,000 monthly pension (₹3 lakhs per year). All of it gets taxed based on your income bracket.
After You Die
NPS: Your family can take everything tax free if they want. Monthly pension payments get taxed at their income level.
UPS: Your spouse gets 60% of your pension, taxed at whatever their total income situation is.
What Really Matters
Contributing years: UPS has higher government contributions (18.5% vs 14%), but you’ll pay slightly more tax because of that extra money.
Retirement time: UPS gives you exact amounts, which sounds great but might push you into higher tax brackets. NPS depends on market performance - sometimes better, sometimes worse.
Control: NPS lets you delay the annuity until 75 if you want to play with tax timing. UPS starts paying immediately when you retire.
Which Should You Choose:-
Pick UPS if: Stock market crashes keep you awake at night and you just want to know exactly what’s in your bank account every month.
Stick with NPS if: You’re comfortable with some uncertainty and think you can do better than what UPS promises.
Bottom Line
Both work pretty much the same way tax wise now. No tax breaks on your contributions, some relief on government contributions, tax free lump sums, but monthly pensions get taxed like any other income.
UPS gives you peace of mind but potentially bigger tax bills because of guaranteed payments. NPS gives you flexibility but market risks.
Comes down to your personality want certainty or willing to gamble for potentially better returns. Either way, you’re paying tax on that monthly pension based on your total retirement income.
Need real numbers for your situation. Call PFRDA at 1800-110-708 or find a tax advisor who can run the math on your actual salary and expected returns.