Moneycontrol
Last Updated : Dec 10, 2018 08:18 PM IST | Source: Moneycontrol.com

Centre makes 60% pension withdrawal tax free, raises govt contribution to 14%

According to government estimates, this would cost Centre close to Rs 2,840 crore in FY20.

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Elaborating on taxability of fund under National Pension Scheme, the government on December 10 said that the entire 60 percent of the corpus withdrawn at the time of retirement will now be tax free.

"Earlier, while exiting the fund (at the time of retirement), 60 percent (of the corpus) was allowed to be withdrawn and the rest went to annuity. Of this 60 percent, 40 percent was tax free and 20 percent was taxable... Now, this entire 60 percent is tax free," Finance Minister Arun Jaitley told reporters.

He said that both entry stage contribution and 60 percent of the withdrawal amount is tax exempt.

"At present, 40 percent of the total accumulated corpus utilised for purchase of annuity is already tax exempted. Out of 60 percent, of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40 percent is tax exempt and balance 20 percent is taxable," statement by the ministry said.

Cabinet Committee of Economic Affairs, on December 6 approved amendments to the National Pension Scheme (NPS) and decided to increase the government's contribution, in the NPS tier - I, to 14 percent from 10 percent.

The amendment will be applicable for all the employees registered under the scheme after 1st January 2004. This number is expected to be 18 lakh.

The scheme will be notified (come into effect) from next financial year, once amendment to Finance Bill is passed.

"The exact date will be notified after the amendment to Finance bill (are passed by the Parliament)," Jaitley said.

According to government estimates, this would cost Centre close to Rs 2,840 crore in FY20.

Providing further tax relief to employees under NPS Tier-II scheme, the cabinet cleared applicability of Section 80C of Income Tax Act to such employees.

"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 for the purpose of income tax at par with the other schemes such as General Provident Fund, Contributory Provident Fund, Employees Provident Fund and Public Provident Fund provided that there is a lock-in period of three years," the statement said.

The Cabinet, headed by Prime Minister, Narendra Modi, also approved various investment options for the employees.

Subhash Chandra Garg, secretary, Department of Expenditure, said that the employees would now have options to invest in various schemes from the accumulated corpus.

"There is a standard plan as per which certain amount is invested in government security, and certain amount is invested in equities or debt..." he said adding, "This debt oriented fund, which was limited up to 15 percent, will now have various options...".

The Secretary said that an employee could choose to invest up to 25 percent in equity or up to 50 percent in equities or take up "conservative" approach of investing 100 percent in equity.

"Each government employee will now have option of various fund managers... The three fund managers from the public sector and five from private sector," he said.

The eight NPS fund managers are Birla Sun Life Pension Scheme, HDFC Pension Fund, ICICI Prudential Pension Fund, Kotak Pension Fund, LIC Pension Fund, Reliance Capital Pension Fund, SBI Pension Fund and UTI Retirement Solutions.

Jaitley also said that all the employees who reported anomalies, between 2004 and 2012, in deposits, either due to delayed deposit or no-deposit will be compensated as per the new scheme.

"The cost of compensation will be over and above the cost estimated for 2019-20," government said.

The recommendations have come after a report was submitted, early in 2018, by committee of secretaries to suggest ways to streamline NPS.
First Published on Dec 10, 2018 03:37 pm
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