Incentives to National Pension System (NPS) subscribers

(i) Under the existing provisions of section 10 of the Act, any payment from the NPS Trust to an assessee on closure of his account or on his opting out of the pension scheme, to the extent it does not exceed forty per cent of the total amount payable to him at the time of such closure or on his opting out of the scheme, is exempt from tax.  With a view to enable the pensioner to have more disposable funds, it is proposed to amend the said section 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.

(ii) Under the existing provisions of section 80CCD of the Income-tax Act, in respect of any contribution by the CentralGovernment or any other employer to the account of the employee referred to in the section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or any other employer, as does not exceed ten per cent of his salary in the previous year. In order to ensure that the Central Government employees get full deduction of the enhanced contribution, it is proposed to increase the limit from ten to fourteen per cent. of  contribution made by the Central Government to the account of its employee.

(iii) To enable the Central Government employees to have more options of tax saving investments under National Pension System, it is proposed to amend the section 80C so as to provide that any amount paid or deposited by a Central Government employee as a contribution to  his Tier-II account of the pension scheme shall be eligible for deduction under the said section.

These amendments will take effect from 1st April, 2020 and will, accordingly, apply in relation to assessment year 2020-21 and subsequent assessment years.

[Clauses 6, 23, & 24]

 

 

 

National Pension System incentives: higher tax exemption on lump sums, expanded employer deduction and Tier-II deductibility for central employees. The Finance Bill increases the tax-exempt portion of lump-sum NPS payments on account closure or opt-out, raises the allowable employer-side deduction for Central Government contributions to employee NPS accounts, and makes Central Government employees' Tier-II NPS contributions eligible for deduction under the general savings deduction provision, with these changes operating prospectively for subsequent assessment years.