Economy

Entire NPS withdrawal at retirement is now tax-free

Our Bureau New Delhi | Updated on December 11, 2018 Published on December 10, 2018

NPS

The Centre said on Monday all government and non-government employees are now exempt from paying income-tax on the entire National Pension Scheme (NPS) money withdrawn at the time of retirement, or on reaching 60 years of age.

It has also allowed Central government employees to park 50 per cent of their NPS corpus in equity investments. The decisions were approved by the Cabinet last week but not made public as Rajasthan and Telangana were going to polls on December 7.

The Central government offers NPS for its employees who joined services on or after January 1, 2004. The employee contributes 10 per cent of basic salary and DA and the government contributes 10 per cent. Any private individual can also open an NPS account, but the contribution will be entirely his. At the time of retirement, 60 per cent of the total corpus can be withdrawn, while 40 per cent will be used to buy annuity for payment of monthly pension.

Earlier, only 40 per cent of the withdrawal amount at retirement was tax-free; now the entire amount is tax-free.

 

 

“This (tax exemption) is called ‘EEE’ — exemption at the time of contribution, exemption on the accumulation and exemption at the time of withdrawal,” Finance Minister Arun Jaitley said at a press conference, adding the move brings NPS on par with Public Provident Fund (PPF) and Employee Provident Fund (EPF) in terms of tax benefits. The use of the remaining 40 per cent of the corpus will be the same, he added.

Now, the government has decided to raise its share from 10 to 14 per cent. However, there will not be any change in the employee share. Any voluntary contribution (under NPS tier II) will also get tax benefit under Section 80C of the I-T Act.

Central government employees have the option of not commuting any part and investing the entire 100 per cent in annuity. “In such a situation the pension could be 50-53 per cent of the last basic plus DA,” Jaitley said. This is similar to the old defined pension system (applicable for Central government employee who joined service on or before December 31, 2003), where the pension is 50 per cent of the last salary (basic+DA) drawn.

The Centre has also allowed its employees to opt for various options under NPS. At present, the contribution is invested in a standard plan wherein 85 per cent is parked in government securities and not more than 15 per cent in equity or equity-related instruments.

From now subscribers will have three more options — 75 per cent in bonds, 25 per cent in equity; 50 per cent in bonds, 50 per cent in equity; and entire 100 per cent in government securities. Also, they can make a choice from eight fund managers, against the current three.

Published on December 10, 2018
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