New Delhi, Aug. 2 -- The Income-tax Act does not contain specific provisions governing the taxation of withdrawals from an NPS Tier II account. As a result, the tax treatment has to be determined based on general principles of taxation, and differing views exist on the issue.

Under the Pension Fund Regulatory and Development Authority (PFRDA) framework, subscribers choose an asset allocation when opening an NPS account. Investments are made in units whose net asset value (NAV) changes over time. One view is that a withdrawal amounts to redemption of these units, with any resulting gain or loss taxable under the head "Capital Gains."

Since Tier II investments are typically diversified across equity, corporate bonds and government securit...