Union Finance Minister Arun Jaitley on Monday also said 60 per cent of the withdrawal from NPS will now be exempted from tax.
7th pay commission: Modi government on Monday announced that the Centre's contribution to the National Pension Scheme would be now 14% instead of 10% earlier. The 4% hike would bring good news to 18 lakh central government employees.
Union Finance Minister Arun Jaitley on Monday also said 60 per cent of the withdrawal from NPS will now be exempted from tax.
National Pension System (NPS) is a government-sponsored pension scheme that was launched in January 2004 for government employees. However, in 2009, it was opened to all sections.
"The new entrants to the central government service on or after 01.01.2004 are covered under the National Pension System (NPS). The Seventh Pay Commission (7th CPC), during its deliberations, examined certain concerns regarding NPS and made recommendations in the year 2015. The 7th CPC recommended for setting up of a Committee of Secretaries in this regard. Accordingly, a Committee of Secretaries was constituted by the Government to suggest measures for streamlining the implementation of NPS in the year 2016. The Committee submitted its report in the year 2018. Accordingly, based on the recommendations of the Committee, draft Cabinet Note was placed before the Cabinet for its approval," said the finance ministry.
Below are the key decisions approved by the Modi Cabeinet on Monday
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1. Centre's mandatory contribution in NPS
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Enhancement of the mandatory contribution by the Central Government for its employees covered under NPS Tier-I from the existing 10% to 14%.
2. Choice for selection of Pension Funds
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Now the individuals will have freedom of choice for selection of Pension Funds and pattern of investment to central government employees.
3. Tax exemption limit
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As per the existing NPS rules, 40% of the total accumulated corpus used to buy annuity at retirement or reaching the age of 60 was already tax-exempted. Out of 60% of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% was tax-exempt too.
Now, the entire 60% will be tax-free, bringing it on a par with other investment schemes like Employee Provident Fund and Public Provident Fund, both of which are exempt from tax at contribution, accumulation and withdrawal stages.
4. Implementation strategy and targets
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The proposed changes to NPS would be made applicable immediately once time critical decisions are taken in consultation with the other concerned Ministries / Departments.
