Central government has approved to raise the contribution to National Pension Scheme (NPS) to 14% of basic salary from the current 10% for government employees. However, the minimum employee contribution will still remain at 10%. Cabinet Committee has also approved tax incentives under section 80C of Income Tax (IT) Act for employees contribution to the extent of 10%.
The government is yet to decide the date of notification for new scheme and it is expected that these new changes would come into effect from 1 April 2019 (beginning of next financial year).
On the recommendations of a govt. appointed committee, Finance Ministry has decided to implement these changes in the National Pension Scheme for employees.
National Pension Scheme Government Contribution Hiked
Presently, both government and employees minimum contribution to NPS is 10% of basic salary. Now, the minimum employee contribution is still 10%, the govt. contribution has been hiked to 14%. In a cabinet meeting held on 6 December 2018, central govt. decides to extend the govt. contribution to National Pension Scheme to 14%. Cabinet has also allowed govt. employees to commute 60% of fund accumulated at the time of retirement from the existing 40%.
Employees will also get a chance to make investment in either fixed income instruments or equities. According to the cabinet decision, in case the employee decides not to commute any accumulated fund in NPS at the time of retirement and he / she decides to transfer the entire fund to annuity scheme, then the pension of those employees would be 50% more than their last drawn pay.
This decision of the cabinet committee will give flexibility to National Pension Scheme which will benefit around 3 million government employees.
As some of the decisions requires an amendment to the Finance Act, the central govt. is likely to bring these amendments in the budget session. The government has not announced this decision because of the ongoing elections in the state of Rajasthan.