FM trims National Pension Scheme norms to please central govt employees

Ministry of Finance has increased the central government's NPS contribution for its employees to 14 per cent from the existing 10 per cent. The government has also tweaked the tax exemption limit for withdrawal on exit making it a Triple E investment plan.

Following the new guidelines approved by the Union Cabinet last week, contributions made by the government employees covered under Tier-II of the National Pension System (NPS) will be considered under Section 80C. This brings NPS on par with other schemes like PF which are considered for deductions of up to Rs. 1.50 lakh for the purpose of income tax.

For Central government employees covered under NPS Tier-I, the government has increased its mandatory contribution from 10 per cent to 14 per cent. Also, the entire 60 per cent withdrawal from NPS will now be tax-exempt. Currently, on exit, 60 per cent of the total accumulated corpus can be withdrawn, of which 40 per cent is tax-free, whereas 20 per cent is taxable. The rest of the corpus, that is 40 per cent is to be utilized for the purchase of annuities. 

More than 18 lakh central government employees are covered under NPS. These contributors of NPS will also get to select between equity and debt. This move will provide for better pension payouts during retirement.