The mandatory contribution by the Central government for its employees covered under NPS Tier-I from has been enhanced from the existing 10% to 14%.

In a bid to streamline the National Pension System (NPS) and make it more attractive, particularly for the government employees, the Union Cabinet has recently approved some changes in the scheme which will benefit around 18 lakh Central government employees covered under NPS. This was informed by Finance Minister Arun Jaitley in New Delhi on Monday.

For instance, the mandatory contribution by the Central government for its employees covered under NPS Tier-I from has been enhanced from the existing 10% to 14%. Also, tax exemption limit for lump sum withdrawal on exit has been enhanced to 60%.

Moreover, “contribution by the government employees under Tier-II of NPS will now be covered under Section 80C for deduction up to Rs 1.50 lakh for the purpose of income tax at par with other Schemes such as GPF, CPF, Employees Provident Fund & PPF, provided that there is a lock-in period of 3 years,” FM Jaitley said.

Some other changes which have been approved by the Union Cabinet include:

# Providing freedom of choice for selection of Pension Funds and pattern of investment to the Central government employees.

# Payment of compensation for non-deposit or delayed deposit of NPS contributions during 2004-2012.

# Tax exemption limit for lump sum withdrawal on exit has been enhanced to 60%. With this, the entire withdrawal will now be exempt from income tax. (At present, 40% of the total accumulated corpus utilized for purchase of annuity is already tax exempted. Out of 60% of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% is tax exempt and the balance 20% is taxable.).

It may be noted that the new entrants to the Central government service on or after 01.01.2004 are covered under the NPS. The Seventh Pay Commission, 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.