7th Pay Commission: In a big relief to 18 lakh government employees, the union cabinet, in its annual budget 2019 has provided them a big opportunity to save money and expand their bank balance. The government has amended certain income tax rules on the investment in the National Pension Scheme (NPA) which will directly benefit central government employees.
The Union Finance Minister Nirmala Sitharaman has increased the income tax exemption limit on withdrawal from NPS account and has also announced additional tax benefits for employees who contributes towards the NPS. Central Government employees who draw their salaries as per 7th pay Commission scheme , will benefit in a major way.
NPS is a government sponsored saving scheme, which was launched in 2004 for government employees. Under this, an individual can contribute regularly in a pension account during their working life, withdraw a part of the corpus in a lump sum and can also use the remaining funds to buy an annuity to secure a regular income after retirement.
Here's how central government employees can save money by investing in the NPA scheme:
1. In the budget 2019, the government has proposed to increase the income tax exemption limit on withdrawal from NPS corpus to 60 percent from the existing 40 percent.
This means, now the entire withdrawal will be exempted from income tax, which will benefit a lot of NPS subscribers.
Earlier, an individual was allowed withdraw lump-sum of up to 60 per cent from the NPS and the balance 40 per cent had to be invested in an annuity plan. However, only 40 per cent withdrawal was tax free and 20 per cent was taxable.
2. Last year, the government approved increasing the contribution of Tier-1 NPS account holder from 10 per cent to 14 per cent, this move will benefit all the government employees as the new entrants to the central government service on or after January 1 are covered under the NPS. This will benefit all the central government employees who come under 7th Pay Commission, as they will accumulate a large amount of money till retirement in their NPS account.
3. Moreover, the Budget also proposed that contributions made to Tier-2 will become eligible for deductions under Section 80C, if the amount is locked for three years.
The NPS has two accounts-Tier 1 account and Tier 2 account. The Tier 1 account is strictly a pension account which does not allow withdrawals, while the the Tier 2 account, also known as investment account - is a voluntary saving account associated with Permanent Retirement Account Number (PRAN). Tax benefits are applicable for investments in the Tier I account only.
All these amendments will take effect from 2020-21.
How to avail income tax benefits available under NPS scheme
An individual can approach any Point of Presence- Service Providers (POP-SP) or alternatively can visit the e-NPS website - enps.nsdl.com for making additional contribution to the Tier 1 account.
Subscribers can submit the transaction statement as investment proof, or NPS- All Citizen Model subscribers can download the receipt of their voluntary contributions made in a Tier 1 account for the required financial year. For this, one needs to log-in to the NPS account and access the sub menu "Statement of Voluntary Contribution under National Pension System (NPS)" under the "View" section in the main menu.
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