The center will contribute 14% of the basic salary to the pension corpus of the government employees. The employees contribution will remain at 10%, bringing the total contribution to 24%.This will benefit 18 lakh central government employees.
Finance Minister Arun Jaitley said the entire withdrawal at the time of retirement would be tax free. At present 40%of the total accumulated corpus utilised for the purchase of annuity is tax exempt.At present, of the remaining 60% corpus withdrawal by the NPS subscriber at the time of retirement , 40% is tax exempt and 20% is taxable. The tax exemption is now extended to the entire 60%.
It is expected that the government can start enhanced contribution beginning January but the tax benefit would be available from the next financial year.
Economic affairs secretary further added that the employees will be able to choose from the list of eight rather than three fund managers at present.
The government employees will now have more investment options. One option would be to invest up to 25%of the corpus in equity, second option, where up to 50% of fund would be invested in equity, and third option of investing up to 100 % in government securities.
Further, the contribution of the government employees under Tier II of NPS will now be covered under section 80 c for deduction up to Rs.1,50,000/- for the purpose of income tax. This is at par with PPF etc. provided there is a lock in period of three years. There had been a long pending demand to bring NPS in the EEE category.
The state governments would decide to follow central government model or not.
source : The Times Of India Business 11-12-2018. New Delhi