- January 22, 2019
- Posted by: Moat Wealth Advisors
- Category: Blogs, Investing, News, Tax Planning
In recent Union Cabinet meeting few changes are approved in NPS or National Pension Scheme. The Cabinet made withdrawal from NPS completely tax-free and also approved higher government contribution for central government employees covered under NPS.
NPS, which was initially introduced for government employees, was thrown open to all citizens of the country, including unorganised sector workers. NPS provides Tier I and Tier II types of accounts. Tier I is a non-withdrawable account till retirement and is meant for savings for retirement. In Tier II accounts the subscriber is free to withdraw savings as per need.
The expected changes are as follows and the new rules are expected to come into effect from April 2019.
- NPS will be fully tax-free on withdrawal. Investors can withdraw 60% of the corpus on maturity and maturity will be tax exempted for government and private investors. Currently, on retirement or on reaching the age of 60, NPS investor are allowed to withdraw 60% of the corpus while 40% has to be invested in annuity plans for getting regular pension pay-outs. Out of 60% of the accumulated corpus withdrawn at the time of retirement, 40% is tax exempt and the balance 20% is taxable.
- For central govt employees, 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%.
- In terms of income-tax benefits, contribution by government employees under Tier-II of NPS will be covered under Section 80C for deduction up to Rs. 1.50 lakh but there is a lock-in period of 3 years.