Finance Minister has announced that state government employees will now be able to claim tax benefit of 14 per cent on the National Pension System (NPS) made by their employer from financial year 2022-23.
According to the Budget Memorandum, “Under the existing provisions of the Act, any contribution by the Central Government (CG) or any other employer regarding section 80CCD of the Act, shall be allowed as a deduction to the assesses in the computation of his total income, if it does not exceed 14 per cent of his salary where such contribution is made by the CG. This limit is presently 10 per cent of his salary where such contribution is made by any other employer. The State Governments were given an option to raise the contribution to 14 per cent w.e.f 1st April, 2019 on their own volition, based on their own internal approvals and notifications, without seeking the approval of the Pension Fund Regulatory and Development Authority.”
However, at present, only the CG’s employees are allowed to claim tax benefit of 14 per cent for the employer’s contribution to their NPS accounts. With new rule state government employees can also take benefit of this tax exemption for Assessment Year 2020-21 and the subsequent years that followed.
This new rule will come into effect retrospectively from 1st April, 2020.