Finance minister Arun Jaitley Monday said the Centre has decided to increase its contribution to the NPS for the Central government employees to 14% and also made the entire withdrawal amount tax free at the time of retirement.
The decision was taken at the Union cabinet meeting last week.
The central government’s contribution to the National Pension System (NPS) will be increased to 14% from the current 10%. The minimum employee contribution stands at 10%.
Addressing the media here, Jaitley said changes have been made in the NPS in the “larger interest of employees”.
Under the NPS, the subscriber is eligible to withdraw 60% of the corpus. The remaining 40% of the accumulated fund goes towards annuity.
Tax exemption limit for lump sum withdrawal on exit has been enhanced to 60%, the minister said, adding that the entire withdrawal will now be exempt from income tax.
Out of 60% of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% is tax exempt and balance 20% is taxable.
This tax exemption on withdrawal is for all sections of employees.
Additional burden due to the increase in government’s contribution on the exchequer will be Rs 2,840 crore for the 2019-20 fiscal year, Jaitley said.
There had been a long pending demand to bring NPS in the EEE (exempt-exempt-exempt) category and at par with employee provident fund (EPF) and Public Provident Fund (PPF).
Also, employees will have the option to invest in either fixed income instruments or equities, sources said.
As per the Cabinet decision, if the employee decides not to commute any portion of the accumulated fund in NPS at the time of retirement and transfers 100 per cent to annuity scheme, then his pension would be more than 50 per cent of his last drawn pay, sources said.The government did not announce the decision in view of the ensuing polls in Rajasthan Friday.
While the government is yet to decide on the date of notification of the new scheme, sources said such changes usually come into effect from the beginning of a financing year, meaning April 1, 2019.
This formula for changes in the NPS was worked out by the Finance Ministry based on the recommendation of a government-appointed committee.