I have withdrawn from NPS after completing 5 years. My withdrawal was premature Complete withdrawal as total amount was less than 2 lakhs. Now, what is the tax treatment of this withdrawal? How to show in ITR filing?
Hey @Deepak_Yadav1,
Welcome to the community!
Since your total NPS corpus was less than ₹5 lakhs (the updated limit for 2026), you were eligible to withdraw 100% of the amount as a lump sum without being forced to buy an annuity.
As per the tax treatment of the withdrawal, the taxability depends on the “source” of the funds in your NPS account:
Your Contributions (Principal): If you did not claim tax deductions [under 80C or 80CCD(1B)] on these contributions, this portion is exempt from tax. And if you did claim these deductions, the amount becomes fully taxable upon withdrawal.
Employer Contributions: This portion (principal + interest) is fully taxable as “Salary” (specifically, “Profits in Lieu of Salary”).
Interest & Market Gains: Any growth or interest earned on both your own and your employer’s contributions is fully taxable as “Income from Other Sources.”
Because this is a premature withdrawal (and not at retirement/age 60), you cannot claim the 60% tax exemption. That specific benefit is reserved only for those who exit at superannuation.
And for ITR filing, you will likely need to use ITR-1 or ITR-2 depending on your other income sources.
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Report employer portion in Schedule Salary under “Profits in lieu of salary” and report growth & tax-deducted principal in Schedule OS (Income from Other Sources).
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The taxable portions will be added to your total income and taxed according to your applicable income tax slab rate.
Hope this helps!