7th Pay Commission: The discontent over the introduction of the 7th CPC recommended National Pension System (NPS), which is contributory, from 2014 and doing away with the old pension scheme among a section of the central government employees led to a two-day strike by workers unions. Under NPS, the employees will get as a pension what they contribute monthly to the fund. The Union Cabinet on December 6, 2018, had approved a proposal to increase the central government employees’ mandatory contribution under NPS from existing 10 percent to 14 percent as recommended by the 7th CPC.
Change in NPS:
It gives central government employees freedom to choose Pension Funds and pattern of investment. The employees have to pay compensation for non-deposit or delayed deposit of NPS contributions. The new proposal states that tax exemption limit for lump sum withdrawal on exit has been enhanced to 60 percent. Currently, 40 percent of the accumulated corpus used for annuity purchase is tax exempted. With this new development, the entire withdrawal will now be exempt from income tax.
“Out of 60 percent of the accumulated corpus withdrawn by the NPS subscriber at the time of retirement, 40% is tax exempt and balance 20% is taxable, Ministry of Finance said in a statement recently.
Employees contribution under Tier-II of NPS will now be covered under Section 80 C for deduction up to Rs. 1.50 lakh. Now, the central government employees will avail of income tax benefits under 80C on a par with the other schemes such as Public Provident Fund, Employees Provident Fund General Provident Fund, and Contributory Provident Fund provided. However, there is a lock-in period of 3 years to get tax benefits under 80C.
Benefits of changes in NPS:
This will lead to increase in accumulated corpus of the central government employees covered under NPS, thereby they will get greater pension amount on retirement. This will not add any additional burden on the employee. This will benefit about
18 lakh central government employees covered under NPS, providing them greater old-age security.
The central government employees who joined service on or after January 1, 2004 are covered under the NPS. NPS is implemented and regulated by the Pension Fund Regulatory and Development Authority.
The Seventh Pay Commission (7th CPC) made recommendations in the year 2015 regarding NPS and recommended setting up of a Committee of Secretaries in this regard to streamline the implementation of NPS in 2016. The Committee to recomend changes in NPS, to make it more attractive to the central government empyoyees, submitted its report in 2018and based on the recommendations draft Cabinet Note was placed before the Cabinet for approval. In December, the Cabinet approved the NPS proposal.