Government approves new National Pension System (NPS) rules

The Government has approved the proposal of streamlining the National Pension System (NPS). To make NPS more attractive to the investors and bring it at par with the Public Provident Fund (PPF) and Employee Provident Fund (EPF) in terms of taxability, the entire NPS withdrawal has been exempted; the contribution to NPS corpus of the Central Government employees has been increased from 10% to 14%.

Contribution by the government employees under Tier II NPS account will be covered under Section 80C of the Income Tax Act, 1961. The deduction of Rs.1,50,000 will also include Tier II NPS contribution along with EPF, PPF, provided the lock-in period is of 3 years.

Moreover, the Central Government employees are now allowed to park up to 50% of their NPS corpus into equity, which will enhance the retirement corpus for the younger employees. This will also lead to greater pension payouts after the retirement without any extra trouble to the employees.

At present, 40% of the total accumulated NPS corpus is exempt if utilized for the purchase of the annuity. Out of the balance 60% which is to be withdrawn at the time of retirement, 40% is tax exempt and 20% is taxable.

With the approval of the new rules, the entire withdrawal of NPS has been exempted under Income Tax; as the tax exemption limit for withdrawal of accumulated NPS at retirement has been increased to 60% from 40%.

According to some experts, the proposals of new NPS rules – which has now be approved by the Union cabinet- would be beneficial for both the Central Government employees as well as the NPS subscribers.

The impact of the new NPS rules will be hopefully accounted in the Financial Year (FY) 2019-20. In a way, the NPS is also moving forward to an Exempt-Exempt-Exempt regime, clearly promoting the NPS investment.