Finance Minister Arun Jaitley on Monday said that in National Pension Scheme (NPS) Centre’s contribution will be raised to 14 per cent from existing 10 per cent.
“Cabinet decided that some changes will be made under the National Pension Scheme (NPS); Central Govt contribution will be raised to 14% from existing 10% in NPS. Entire 60% of withdrawals from NPS will now be tax-free,” news agency ANI quoted Arun Jaitley, as saying.
Minimum employee contribution will, however, remain at 10 per cent.
Presently, the government and employees contribute 10 per cent of basic salary each to NPS.
While the minimum employee contribution remains at 10 per cent, the government contribution has been increased from 10 per cent to 14 per cent.
The Cabinet, headed by Prime Minister Narendra Modi, also allowed government employees to commute 60 per cent of the fund accumulated at the time of retirement, up from 40 per cent at present.
Also, employees will have the option to invest in either fixed income instruments or equities, sources said.
As per the Cabinet decision, if the employee decides not to commute any portion of the accumulated fund in NPS at the time of retirement and transfers 100 per cent to annuity scheme, then his pension would be more than 50 per cent of his last drawn pay.
While the government is yet to decide on the date of notification of the new scheme, sources said such changes usually come into effect from the beginning of a financing year, meaning April 1, 2019.
This formula for changes in the NPS was worked out by the Finance Ministry based on the recommendation of a government-appointed committee.
(With inputs from agencies)
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