Income Tax deductions for private & state government employees to be made under NPS

Pension fund regulator PFRDA will propose the government to make employers’ contribution of 14% under NPS or National Pension Scheme tax-free for all categories of subscribers. Currently, the 14% limit is given only to the central government employers.

Supratim Bandyopadhyay Chairman of PFRRDA or Pension Fund Regulatory and Development Authority said “We may propose things like 14% contribution by employers to be made tax free to all. So we are requesting the government to give it to all the employers, whether it is state governments or other corporate entities so that subscribers across the board can get this benefit.”


Under Section 80 CCD(2) if an employer is contributing towards the employee’s NPS account, a deduction up to a certain percentage of salary (basic + DA) irrespective of any limit qualifies for an income tax deduction. For central government employees, it is 14% of salary and for others, the limit is 10%.

Pension Fund Regulatory and Development Authority (PFRDA) is supposed to ask the government to extend the benefit of tier-II NPS account as tax-free for all subscribers. There are two types of NPS accounts — tier-I and tier-II. A tier-II account under NPS is not a compulsory account, one can have it along with the tier-I account.

PFRDA is expecting to begin the process for separating NPS Trust from itself in the next financial year. In the Union Budget for 2019-20, the government had proposed to separate the NPS Trust from the pension regulator in order to address issues of conflict of interest.

Finance Minister Nirmala Sitharaman had said in July 2019 while presenting the full budget for FY2020 post steps will be taken to separate the NPS Trust from the authority with appropriate organizational structure.