In a bonanza for government employees, the cabinet on Thursday raised the government’s contribution to National Pension Scheme (NPS) to 14 per cent of basic salary from the current 10 per cent, but did not announce the decision in view of the ensuing elections in Rajasthan and Andhra Pradesh.
The minimum employee contribution will, however, remain at 10 per cent.
The cabinet also approved tax incentives under 80C of the Income Tax Act for employees’ contribution to the extent of 10 per cent. At present, the government and employees contribute 10 per cent of basic salary each to NPS.
The cabinet meeting chaired by Prime Minister Narendra Modi also allowed government employees to commute 60 per cent of the fund accumulated at the time of retirement, up from 40 per cent at present. Also, employees will have the option to invest in either fixed income instruments or equities.
If the employee decides not to commute any portion of the accumulated fund in NPS at the time of retirement and transfers 100 per cent to annuity scheme, then his pension would be more than 50 per cent of his last drawn pay, sources said. The government did not announce the decision in view of the ensuing polls in Rajasthan on Friday. While the government is yet to decide on the date of notification of the new scheme, sources said such changes usually come into effect from the beginning of a financing year, ie, 1 April 2019.
The changes in the NPS were worked out by the finance ministry based on the recommendation of a government-appointed committee.