Government to now contribute 14% to National Pension System, no tax on withdrawal

Finance minister Arun Jaitley Monday said the Centre has decided to increase its contribution to the National Pension System (NPS) for the central government employees to 14% and also made the entire withdrawal amount tax free at the time of retirement.

The decision was taken at the Union Cabinet meeting last week.

The central government’s contribution to the National Pension System (NPS) will be increased to 14% from the current 10%. The minimum employee contribution stands at 10%.

Addressing the media in New Delhi, Jaitley said changes have been made in the NPS in “larger interest of employees”.

Under the NPS, the subscriber is eligible to withdraw 60 per cent of the corpus. The remaining 40% of the accumulated fund goes towards annuity.

Tax exemption limit for lump sum withdrawal on exit has been enhanced to 60 per cent, the minister said, adding the entire withdrawal will now be exempt from income tax. Out of 60 per cent of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40 per cent is tax exempt and balance 20 per cent is taxable.

This tax exemption on withdrawal is for all sections of employees.

Additional burden due to the increase in government’s contribution on the exchequer will be ₹2,840 crore for the 2019-20 fiscal, Jaitley said.

There had been a long pending demand to bring NPS in the EEE (exempt-exempt-exempt) category and at par with employee provident fund (EPF) and Public Provident Fund (PPF).