National Pension Scheme: Prime Minister Narendra Modi-led Union Cabinet has announced a big bonanza for government employees by approving a number of changes in the National Pension Scheme (NPS)s. The changes are set to immensely help the government employees. The government may make a formal announcement soon. It did not announce the decision on Thursday in view of the ensuing polls in Rajasthan. The government is yet to decide on the date of notification of the new scheme. Such changes usually come into effect from the beginning of a financing year, meaning April 1, 2019. This formula for changes in the NPS was worked out by the Finance Ministry based on the recommendation of a government-appointed committee.
Here are the changes approved by the government and how the employees will benefit.
1. Government contribution to NPS
The Cabinet has decided to raise the government’s contribution to National Pension Scheme (NPS) to 14 percent of basic salary from the current 10 percent, PTI quoted its sources as saying. The minimum employee contribution will remain at 10 percent. The Cabinet decision comes in the wake of scores of government employees demanding the return of the Old Pension Scheme. At present, the government and employees contribute 10 percent of basic salary each to NPS. While the minimum employee contribution remains at 10 percent, the government contribution has been increased from 10 percent to 14 percent.
2. NPS withdrawal
The government employees will be allowed to withdraw more lump sum at the time of retirement. The Cabinet has allowed government employees to commute 60 percent of the fund accumulated at the time of retirement, up from 40 percent at present. As per the Cabinet decision, if the employee decides not to commute any portion of the accumulated fund in NPS at the time of retirement and transfers 100 percent to annuity scheme, then his pension would be more than 50 percent of his last drawn pay, sources said.
The government employees will now have the option to invest in either fixed income instruments or equities, the report quoted sources as saying.
4. Income Tax
Cabinet has also approved tax incentives under 80C of the Income Tax Act for employees’ contribution to the extent of 10 percent. More details on this would be known when the government releases its official notification.