For completeness of understanding on the tax treatment of NPS Tier II on withdrawal (bl.portfolio edition dated May 24), what is the tax treatment of a one-way switch from NPS Tier II to Tier I?

Dr Shraman Jha

One-way switch from NPS Tier II to Tier I will be regarded as redemption of units in Tier II, followed by a fresh investment into Tier I. The Income-Tax provisions currently do not provide a specific exemption for inter-scheme transfer / switch from Tier II to Tier I. Hence this would attract taxation. 

Accordingly, at the time of switch, the appreciation in the Tier II units shall be liable to capital gains tax in the same manner as a normal withdrawal from Tier II. The characterisation as short-term or long-term capital gains would depend on the holding period of the Tier II units being switched. The tax treatment broadly remains similar as below:

Units held for more than 24 months would qualify as long-term capital assets and gains would be taxable at 12.5 per cent (without indexation).

Units held for 24 months or less would result in short-term capital gains taxable at the applicable slab rates.

The writer is Partner, Deloitte India

Published on May 30, 2026