Aiming to make retirement income scheme more attractive for central government employees, the government has agreed to chip in a higher 14 per cent of the basic salary of an individual as its contribution to the National Pension System (NPS).
According to an official source, the move would benefit over 36 lakh central government employees. Individual contributions, which will continue to be capped at a maximum of 10 per cent of the basic salary, will be exempt from taxable income. National Pension System (NPS) is a government-sponsored pension scheme that was launched in January 2004 for government employees. However, in 2009, it was opened to all sections. The scheme allows subscribers to contribute regularly in a pension account during their working life. On retirement, subscribers can withdraw a part of the corpus in a lump sum and use the remaining corpus to buy an annuity to secure a regular income after retirement. Currently, the minimum employee contribution in NPS is 10 per cent of basic pay and an equal contribution is made by the government. The Cabinet at its meeting Thursday cleared raising the government’s share to NPS to 14 per cent. It also cleared tax incentives under Section 80C of Income Tax Act for employee contribution of up to 10 per cent towards NPS. The tax measures are likely to come into effect from April 1, 2019. Central government employees had approached the government seeking tweaking of the terms of the current ‘contribution’ based NPS. Also, the Cabinet has given more flexibility to the government employees to withdraw the amount from NPS corpus at the time of retirement.