Good news: Centre's contribution to NPS hiked to 14%

Union Finance Minister Arun Jaitley on Monday announced that the Centre would raise its contribution to 14 per cent from the existing 10 per cent. He also informed that 60 per cent of the withdrawal from NPS will now be exempted from tax. 

The move would benefit over 36 lakh central government employees.

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 scheme allows subscribers to contribute regularly in a pension account during their working life. On retirement, subscribers can withdraw a part of the corpus in a lump sum and use the remaining corpus to buy an annuity to secure a regular income after retirement.

Currently, the minimum employee contribution in NPS is 10 per cent of basic pay and an equal contribution is made by the government.The Cabinet at its meeting Thursday cleared raising the government's share to NPS to 14 per cent, the source said.

It also cleared tax incentives under Section 80C of Income Tax Act for employee contribution of up to 10 per cent towards NPS. The tax measures are likely to come into effect from April 1, 2019.

Central government employees had approached the government seeking tweaking of the terms of the current 'contribution' based NPS.

Also, the Cabinet has given more flexibility to the government employees to withdraw the amount from NPS corpus at the time of retirement.

Once the changes are notified, central government employees can commute up to 60 per cent of the NPS fund accumulated, up from 40 per cent at present.

(With inputs from PTI)