Did NPS subscriber get tax deduction on additional 20% contribution (from 60% to 80%)?
Finance Minister Nirmala Sitharaman in her Budget 2026 speech today (Sunday, February 1, 2026) did not increase the tax-free National Pension System (NPS) lump sum withdrawal limit for non-government subscribers from 60% to 80%. After Pension Fund Regulatory and Development Authority (PFRDA) increased the NPS lump sum withdrawal limit for non-government subscribers from 60% to 80% in December 2025, a lot of NPS subscribers were expecting the government to increase the tax-free lump sum withdrawal limit to 80%, but the Finance Minister made no such announcement today.
Now, NPS subscribers have to wait whether the Income Tax Department comes up with a circular to increase the tax-free lump sum withdrawal limit from 60% to 80% for non-government subscribers.
Pratik Vaidya Managing Director and Chief Vision Officer, Karma Management Global Consulting Solutions Pvt Ltd, says, “If the current structure continues and 20% of the NPS corpus remains taxable at exit, the tax impact can still be relatively moderate for retirees with no other income. For instance, on a retirement corpus of Rs 2.5 crore, 20% or Rs 50 lakh would be treated as taxable income.”
