The Union Finance Minister Arun Jaitley has confirmed that the Central Government will now be enhancing its contribution to the NPS (National Pension System). The Government will contribute 14% for central government employees in the NPS while making the whole withdrawal amount free of taxation at retirement. Tax exemption limits for lump sum withdrawal upon exit has also been increased to 60% according to Jaitley.
This decision has already been approved at a meeting of the Union Cabinet sometime earlier. The Central Government currently contributes 10% to the NPS and this will go up to 14% while the minimum employee contribution is 10%. Finance Minister Arun Jaitley has stated that these changes have been made to safeguard the interests of employees.
Under the NPS system, subscribers can withdraw up to 60% of their accumulated corpus while the 40% remainder will be allocated for the annuity. The tax exemption for the lump sum withdrawal has been increased to 60% as stated earlier which means that the full withdrawal will not draw any taxes upon retirement. Currently, out of 60% of the corpus withdrawn by NPS subscribers upon retirement, 40% is exempted from taxes while 20% remains taxable. This system is now going to change and the exemption upon withdrawal will be offered for all grades and sections of central government employees.
With the increase in the contribution of the government, the exchequer will have to provide for an additional INR 2, 840 crore for FY2019-20 according to the Union Finance Minister. Demands were being made from several quarters to put NPS in the exempt-exempt-exempt (EEE) bracket at par with the PPF (Public Provident Fund) and EPF (Employee Provident Fund).
