7th Pay Commission: Huge benefit relating to NPS, CG employees must know this
New Delhi, July 10: Some of the changes that were proposed to the NPS were based on the 7th Pay Commission.
In the recent budget many changes were proposed to the income tax rules, which governs investment and withdrawal in the retirement pension scheme, NPS. The income tax exemption was increased on the limit on withdrawal from NPS.
There were also some benefits that were announced for Central Government employees who contribute towards the retirement scheme. This would take effect from 2020-21.
Currently upon retirement, an individual can withdraw a lump sum of up to 60 per cent of the NPS corpus funds and the balance has to be invested in an annuity plan. 40 per cent of the corpus fund withdrawn is tax-exempt, while 20 per cent is taxable.
It is now proposed to raise the income tax exemption from 40 per cent to 60 per cent of the NPS corpus. This would in effect make the entire withdrawal exempt from income tax and this would be beneficial to all NPS subscribers.
It may be recalled that the the Union Cabinet had last year approved increasing the Tier-1 account for CG employees from 10 to 14 per cent. The new employees on or after January 1 are covered under the NPS. The mandatory contribution of CG employees would remain as 10 per cent of the basic salary.
The budget has also proposed that the contributions made to the Tier-II NPS account would become eligible for deductions under Section 80 C, if the amount is in a lock in period for a minimum of three years. Some of the changes made to the NPS were based on the recommendations of the 7th Pay Commission.