Notification No. 27/2025- Income Tax | Dated: 4th April, 2025
Budget 2025 provides that withdrawals from National Savings Scheme (NSS) accounts-both principal and interest-are now fully tax-exempt for individuals making withdrawals on or after August 29, 2024. This exemption enacted under section 80CCA(2) is particularly significant for senior citizens and those with old NSS accounts that have stopped earning interest since October 1, 2024.
The exemption applies retroactively to withdrawals made on or after August 29, 2024. Legal heirs of NSS account holders will also benefit from this exemption if they withdraw after the depositor’s death.
No TDS on Withdrawals:
The Central Board of Direct Taxes (CBDT) issued a notification No. 27/2025 dated 4th April 2025 confirming that no Tax Deducted at Source (TDS) will be applicable under section 194EE to NSS withdrawals from April 4, 2025, onwards. This ensures that account holders receive the full amount without any deductions at withdrawal.
Previously, withdrawals from NSS accounts were treated as taxable income under “Income from Other Sources,” and TDS was deducted at the time of withdrawal under section 194EE. The Government had already stopped paying interest on NSS balances from October 1, 2024, making the exemption especially relevant for holders of old, non-interest-earning accounts.
The exemption provides substantial relief, allowing Seniors to access their retirement savings in full, without additional tax liabilities or deductions. This supports financial independence and security in retirement.
For Legal Heirs:
If the NSS account holder passes away, legal heirs withdrawing the funds will also receive the exemption, ensuring no tax is deducted on inherited withdrawals.
TDS and Compliance:
While the exemption from TDS is now in effect, some Post Offices may still deduct TDS due to lag in updated procedures. In such cases, submitting Form 15G (for individuals) or Form 15H (for senior citizens) can prevent TDS deduction. If TDS is still deducted, the recipient can claim a refund by filing an income tax return, though the same may cause several practical difficulties as CPC at the time of processing of return matches Income appearing in 26AS with Income disclosed in ITR and sends defective return notices. At times only proportionate tax credit is allowed citing mismatch in Income and TDS claim. This issue needs to be overcome with making appropriate changes in the Income Tax Return Forms or issuance of guidelines for processing of tax returns. Hope someone is listening.
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As per Notification No. 27/2025, only exemption is from TDS on withdrawal from NSS. But as per Your article there is exemption also from tax on Principle and interest withdrawal from NSS. Kindly specify the section under which tax exemption is to be claimed.
As stated in the Article Section 80CCA is amended by insertion of proviso to sub-section (2), which specifically exempts withdrawals from NSS Account post 29th August 2024.
Has column for availing this exemption been made in ITR Forms for AY 2025-26(FY 2024-25).
If it has not been provided TaxGuru must initiate it for incorporation in ITR-1 & ITR-2 with CBDT so that senior citizen may not have problem in filing return for taking exemption.