7th Pay Commission Latest News Today 2018: National Pension System still not at par with PPF, EPF?

| December 19, 2018

7th Pay Commission: The recent changes to the National Pension System (NPS) rules as per the recommendation of the 7th Pay Commission has come as a new year gift for central government employees.

7th Pay Commission: The recent changes to the National Pension System (NPS) rules as per the recommendation of the 7th Pay Commission has come as a new year gift for central government employees. However, there is still a lot of confusion among taxpayers about the implications and applicability of the changes announced by the government.








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The 7th Pay Commission had recommended tax neutrality for all government employees. “Tax neutrality should be ensured across various avenues for long term savings for post retirement incomes so that the employees covered by NPS are not at a disadvantage. The Commission therefore, recommends that withdrawals under the NPS should be tax-exempt to place NPS at par with other pension schemes. The Commission also recommends that the service tax levied at the time of annuity purchase by NPS subscribers should be exempted,” the pay panel had recommended in its report.




So, you can see that 7th Pay Commission had argued for not putting employees at a disadvantage. The changes to NPS announced by the government are indeed welcome but they can’t benefit all employees unless certain changes to the Income Tax Act are effected.

Instead of 10%, the Central Government will now contribute 14% to NPS account of its employees. The empoyees’ contribution remains 10%. This will help central government employees accumulate a higher retirement corpus. However, tax and investment expert Balwant Jain points out in an article in DNA that under the current provisions of the Income Tax Act, the limit for claiming deduction in respect of employer contribution is 10%. This means, the additional 4% contribution by the government will not be eligible for tax deduction.




The tax benefit has now been extended to Tier-II account under Section 80C of the Income Tax Act. However, one can avail the tax benefit only when the contribution serves the lock-in period of three years. Equity Linked Saving Scheme (ELSS) is another scheme with similar tenure.

Jain says that allowing ELSS-like tax benefit to NPS tier-II contribution would mean the subscriber is investing in a debt product. To bring this change into effect, another amendment to the I-T Act would be required.

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