Finance minister Arun Jaitley on Monday said the employee contribution will remain unchanged at 10 percent in National Pension Scheme (NPS), while the central government’s contribution will be raised to 14 percent from the existing 10 percent.
The EEE status will bring NPS at par with Employees' Provident Fund (EPF)and Public Provident Fund (PPF) in terms of tax treatment. This is the biggest change that the Pension Regulator PFRDA was seeking for the last 10 years.
was the first to report earlier in the day about these changes.
The cabinet cleared five changes to the NPS in order to have an EEE (exempt-exempt-exempt) tax status, multiple sources told CNBC-TV18 on Monday.
With the amendments, the FM said, entire 60 percent of withdrawals from NPS will be tax free now.
Additional savings under NPS will be qualified for 80C tax deduction benefit of up to Rs 1.50 lakh annually and interest will be paid for delayed payouts.
The government employees will also get the option of mix of debt-equity for NPS investment. The changes in the NPS will be effective from next fiscal year, however, the exact date of effectiveness will be notified later.
Withdrawal Upon Maturity
Under the NPS, the subscriber is eligible to withdraw 60 percent of the corpus. The remaining 40 percent of the accumulated fund goes towards annuity.
Tax exemption limit for lump sum withdrawal on exit has been enhanced to 60 percent, but the entire withdrawal will now be exempt from income tax.
Out of 60 percent of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40 percent is tax exempt and balance 20 percent is taxable. This tax exemption on withdrawal is for all sections of employees.
Tax Incentive for Investment
Now, contribution by the government employees under Tier-II of NPS will now be covered under Section 80 C for deduction up to Rs. 1.50 lakh and an additional of Rs 50,000/- under section 80CCD for the purpose of income tax provided that there is a lock-in period of three years.
NPS offers two types of accounts to its subscribers. The Tier 1 account is non-withdrawable till the subscriber reaches the age of 60. The Tier 2 account is a voluntary savings account and subscribers can withdraw their money from it whenever they want.