The new rules impacting the National Pension System (NPS) have been notified by Ministry of Finance. In a notification dated January 31, 2019, the ministry had made the amendments based on the Union Cabinet meeting on the 6th December 2018, which had approved certain proposals for streamlining the National Pension System (NPS).
One of the proposals was for enhancement of the mandatory contribution by the Central Government for its employees covered under NPS Tier-I from the existing 10 per cent to 14 per cent. Accordingly, now that the notification has been issued, the monthly contribution by the employee will be 10 per cent of the basic pay plus DA while that of the central government, it will be 14 per cent of the basic pay plus DA.Read more ↓
Selection of pension fund managers (PFM)
The new rules will allow freedom of choice for selection of Pension Funds and pattern of investment to central government employees as is available to the private sector subscribers. They can change the PFM once a year. The current provision of a combination of public sector pension funds will continue to be available as the default option for both existing and new government employees.
Investment options for government employees
Government employees who prefer a fixed return with a minimum amount of risk may be given an option to invest 100 per cent in government securities (Scheme G). Government employees who prefer a higher return may be given the option of these two Life Cycle Funds – LC25 – With maximum 25 per cent in equities and LC50 – With maximum 50 per cent in equities.
However, as of now, for changing investment pattern or the pension fund manager, the PFRDA is going ahead only with incremental flows only.
Two other major decision taken by the cabinet were the following:
Tax-exempt limit enhancement
Tax exemption limit for lump sum withdrawal on exit has been enhanced to 60%. With this, the entire withdrawal will now be exempt from income tax. Earlier, out of 60% of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% was tax exempt and balance 20% was taxable.
New Section 80C avenue
Contribution by the Government employees under Tier-II of NPS will now be covered under Section 80C for deduction up to Rs. 1.50 lakh for the purpose of income tax at par with the other schemes such as General Provident Fund, Contributory Provident Fund, Employees Provident Fund and Public Provident Fund provided that there is a lock-in period of 3 years.
Earlier in a written reply to a question in Rajya Sabha in Jan 2019, the Union Minister of State (Independent Charge) Development of North-Eastern Region (DoNER), MoS PMO, Personnel, Public Grievances & Pensions, Atomic Energy and Space, Dr Jitendra Singh had informed that in the event of death of a Government servant of his discharge from service on account of disability or invalidation on medical grounds, the benefit of Central Civil Services (Pension) Rules, 1972 are available to the Government employees of his family members.
Also, the Central Government employees covered under NPS are eligible for the benefit of retirement gratuity and death gratuity on the same terms and conditions as are applicable under Central Civil Services (Pension) Rules, 1972.
Further, the NPS employees are also eligible for other post-retirement benefits such as leave encashment, group insurance, medical facility, etc., as are applicable to employees appointed before 01.01.2014.