The government on Friday proposed to increase the income tax exemption limit on withdrawal from National Pension System (NPS) to 60 per cent, from the existing 40 per cent. NPS is a government-sponsored retirement planning instrument. In NPS, a government employee contributes towards pension from his/her monthly salary along with matching contribution from the employer. The funds are then invested in earmarked investment schemes through pension fund managers. Under the existing provisions of the Income Tax Act, any payment from the NPS Trust to an assessee on closure of account or opting out of the pension scheme, up to 40 per cent of the total amount payable, is exempt from tax.
Here are 5 things to know about Budget's announcement for NPS subscribers:
1. "With a view to enable the pensioner to have more disposable funds, it is proposed to amend the said section (10 of the Act) so as to increase the said exemption from forty per cent to sixty per cent of the total amount payable to the person at the time of closure or his opting out of the scheme," said the Budget document tabled in Parliament by Finance Minister Nirmala Sitharaman. The proposed higher exemption limit will be applicable from April next year.
2. The government also proposed to separate the NPS Trust from regulator Pension Fund Regulatory and Development Authority (PFRDA).
3. PFRDA implements and regulates the National Pension System (NPS) and Atal Pension Yojana through various intermediaries including, inter-alia, the NPS Trust. The trust was established by the PFRDA for taking care of the assets and funds under the NPS.
4. "Keeping in view the wider interest of the subscribers and to maintain arm's length relationship of the NPS Trust with PFRDA, steps will be taken to separate the NPS Trust from PFRDA with appropriate organizational structure," the minister said in her Budget speech.
5. The Budget document further said that in order to ensure that the central government employees get full deduction of the enhanced contribution, it is proposed to increase the limit from 10 to 14 per cent of contribution made by the government to the account of its employees.