New Delhi: The government has decided to make the National Pension System (NPS) fully tax free, making it on a par with the provident fund scheme.
The Union cabinet has decided to exempt the income tax that is applicable on a part of the NPS corpus that is withdrawn on retirement, finance minister Arun Jaitley told reporters on Monday. The cabinet decision taken last week was made public on Monday due to assembly elections in Rajasthan and Telangana.
At present, while exiting the scheme, 60% of the corpus could be withdrawn and 20% of the withdrawn amount is taxable. The cabinet has made this portion tax free. The remaining part that could be used to buy annuities is anyway tax free. With this decision, NPS has acquired parity with provident fund savings, which are not taxed at any of the three stages of saving, profit accrual or exit.
The cabinet also raised the contribution of the central government to the NPS corpus of its employees from 10% to 14%, Jaitley said. This will increase in the eventual accumulated corpus of all central government employees covered by the NPS. There are 18 lakh central government employees at present. The revenue impact from the higher government contribution to employees’ corpus is expected to be around Rs.2,840 crore for 2019-20, and will be in the nature of a recurring expenditure.