Changes in National Pension Scheme (NPS): How you stands to benefit
Government of India has recently
made host of change to National Pension Scheme (NPS). These changes have made
NPS very attractive for investors who constantly seeks avenues to earn better
returns. Apart from higher government contribution for central government
employees withdrawal from NPS have been made completely tax-free. The new rules
are expected to come into effect from April 1, 2019
Here are 10 things you need to know:
1) Central government employees covered under NPS,
got their new year gift in advance as the government’s contribution towards the
pension scheme has been increased from the existing 10% to 14%. The employee’s
contribution remains unchanged at 10%. This additional 4% will cost exchequer
around Rs 2840 Crores in FY 2018-19
2) NPS is now an E-E-E product i.e. Exempt-
Exempt- Exempt s far as taxation is concerned. This mean there will be no tax while subscribing to NPS
nor withdrawing. This has put NPS on par with PPF (as far as tax treatment is concerned).
The Cabinet has approved proposal to make NPS fully tax-free on withdrawal. Subscribers will get full tax
exemption on the 60% of the corpus that an investor is allowed to withdraw on
maturity.
3) This change of rules on making
the NPS withdrawal tax-free will apply to both government and private
subscribers. Currently, on withdrawal, 20% of the NPS corpus is taxable on
maturity. This move will take out huge burden from subscribers at time of
maturity.
4) This will benefit
approximately 1.8 million central government employees covered under NPS. On
retirement or on reaching the age of 60, NPS subscribers are allowed to
withdraw 60% of the corpus while 40% has to be invested in annuity plans for
getting regular pension payouts.
5) This will increase the
eventual accumulated corpus of all central government employees covered under
NPS. Central government employee will have twin benefits of 4% additional contribution to their corpus and tax exemptions.
6) Central government employees
covered under NPS will have more flexibility in terms of choice of pension fund
managers and patterns of investment. Read more on best performing NPS fund here.
7) In addition, for central
government employees, the government approved “payment of compensation for
non-deposit or delayed deposit of NPS contributions during 2004-2012.”
8) Contribution by government
employees under Tier-II of NPS will be covered under Section 80C for deduction
up to Rs. 1.50 lakh, provided that there is a lock-in period of 3 years.
9) Private subscribers will also
benefit from this move. This will put NPS at par with equity linked
savings schemes (or ELSS mutual funds) and will have lowest lock-in period of
tax savings investments under Section 80C.
10) NPS provides two types of
accounts - Tier I and Tier II. Government employees are covered in Tier I by
default. For more details please refer our article on NPS here.
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