Thanks to proposals announced by Finance Minister Nirmala Sitharaman in her first Budget speech on Friday last, the National Pension System (NPS) has become more attractive for customers. Sitharaman proposed several incentives for the NPS subscribers: 

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1. Increase the limit of exemption from current 40% to 60% of payment on final withdrawal from NPS.
2. Allow deduction for employer’s contribution upto 14% of salary from current 10%, in case of Central Government employee.
3. Allow deduction under section 80C for contribution made to Tier II NPS account by Central Government employees. 

It is clear from the above proposals that NPS withdrawal has now become completely tax-free. Currently, at the time of withdrawal, a subscriber can invest a minimum of 40% of the amount in annuity and withdraw the balance in a lumpsum. 

Secondly, for case of central government employees, the Government has further allowed deduction for employer’s contribution up to 14% of salary from current 10%. 

Thirdly, the benefit of 80C deductions on deposits made by the employees in Tier-II accounts will be available. 

All these changes will come into effect from April 1, 2020. 

Sitharaman also announced the proposal to separate NPS Trust and PFRDA for the benefit of subscribers. The Finance Minister proposed to separate NPS Trust from pension regulator PFRDA to address issues over conflict of interest, which arises since PFRDA is the regulator of the pension sector in India while at the same time it runs pension schemes such as NPS and APY. This proposal was was under consideration for last few years and will have long-term benefits.