Now, Govt Contribution To National Pension Scheme To Rise To 14%

The Cabinet also approved tax incentives u/s 80C of Income Tax Act for employees’ contribution to the extent of 10%.

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In a bonanza for government employees, the Cabinet on Thursday, 6 November, raised the government's contribution to National Pension Scheme (NPS) to 14 percent of basic salary from the current 10 percent, sources said.

Minimum employee contribution will, however, remain at 10 percent.

The Cabinet also approved tax incentives under Section 80C of the Income Tax Act for employees’ contribution to the extent of 10 percent.

Presently, the government and employees contribute 10 percent of basic salary each to NPS.

While the minimum employee contribution remains at 10 percent, the government contribution has been increased from 10 percent to 14 percent.

The Cabinet, headed by Prime Minister Narendra Modi, also allowed government employees to commute 60 percent of the fund accumulated at the time of retirement, up from 40 percent 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 percent to annuity scheme, then his pension would be more than 50 percent of his last drawn pay, sources said.

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 financial year (in this case – 1 April, 2019).

This formula for changes in the NPS was worked out by the Finance Ministry based on the recommendation of a government-appointed committee.