Queries

NPS Can Be Closed Only After 5 Years

Rajat Joshi, Dehradun

I have opened a National Pension System (NPS) account with the bank with which I have my savings account. I want to close that account and re-open one directly through the NPS portal. How should I go about it?

It is possible to close your NPS account that you opened via your bank. However, the existing NPS account can only be closed after completion of five years, only after the following criteria are fulfilled.

If the accumulated withdrawal amount is less than Rs 2.5 lakh, you can withdraw the full amount. If the accumulated amount is more than Rs 2.5 lakh, then 60 per cent of the withdrawal amount will be credited to your bank account and the balance 40 per cent will be utilised for providing pension.

Once the NPS account with the bank is closed, the investor can visit the NPS portal online and go to the JOIN NPS option, fill the required details and start a new NPS account.

Suhel Chander, CFPCM, Handholding Financials

Gulshan Duggal, New Delhi

I hold two shares (bought via initial public offerings) issued to me in 1992 at Rs 10 and Rs 55, respectively. Please suggest, what will be the cost inflation index (CII) for deciding their acquisition cost and  calculating capital gains if I sell them in 2023?

As you have purchased the shares in 1992, i.e. before January 31, 2018, the acquisition cost will be considered as follows, considering the grandfathering provisions.

For the calculation of tax on the cost of acquisition, the values will be taken as the higher of: (1) The actual cost of acquisition; and (2) lower of the fair market value (FMV) of the share and the sales consideration as on January 31, 2018.

Let us take three scenarios for better understanding.

Scenario A

In the first case, let us assume the purchase price as Rs 10 and the selling price as Rs 100. Let us assume, the FMV on January 31, 2018 is Rs 120. Going by the above formula, the cost of acquisition and gain/loss will be calculated as under:

Calculation: Higher of:

• Actual cost of acquisition: Rs 10
• Lower of (FMV on January 31 January, 2018, Rs 120) and (selling price Rs 100)

So, the cost of acquisition to be considered in this scenario is Rs 100. (higher of point 1 and point 2 i.e. Rs 10 and Rs 100).

Thus, the gains/loss calculation will be calculated as under:

Selling price: Rs 100

Cost of aquisition: Rs 100

Gains: Nil

So, you would not be allowed a loss on grandfathered value (i.e. FMV on January 31, 2018), and it will be considered as nil.

Scenario B

In the second scenario, let us consider Rs 55 as your purchase price, Rs 40 as the selling price, and FMV as Rs 50 on January 31, 2018. The calculation will be as follows:

Calculation: Higher of:

• Actual cost of acquisition: Rs 55
• Lower of (FMV on January 31, 2018, Rs 50) and (selling price Rs 40)

So, the cost of acquisition will be Rs 55.

Thus, the gains/loss calculation will be calculated as under:

Selling price: Rs 40

Cost of acquisition: Rs 55

Loss: Rs 15

Scenario C

Let us take the purchase price as Rs 10 and selling price as Rs 100. Considering the FMV on January 31, 2018 as Rs 80, the calculation will be as below:

Calculation: Higher of:

• Actual cost of acquisition: Rs 10
• Lower of (FMV on January 31, 2018,  Rs 80) and (selling price Rs 100)

So, the cost of acquisition will be Rs 80.

Thus, the gains/loss calculation will be calculated as below:

Selling price: Rs 100

Cost of Acquisition: Rs 80

Gain: Rs 20

Uma S. Chander, CFPCM, Handholding Financials