In a bid to make the National Pension System (NPS) more attractive for investors and bring it on a par with investment schemes like PPF (Public Provident Fund) and EPF (Employee Provident Fund) in terms of tax benefits, the government has made the entire NPS withdrawal tax-free and has also raised their contribution to the NPS corpus of the Central government employees from 10% to 14%. The government has also allowed the Central government employees to park up to 50% of their NPS corpus in equity, which will particularly help the younger employees to build a bigger retirement corpus. Moreover, contribution by the government employees under Tier-II of NPS will now be covered u\/s 80C of the Income Tax Act for deduction up to Rs 1.50 lakh for the purpose of income tax, provided there is a lock-in period of three years. However, to implement the taxation changes in NPS, the government would bring changes to the Income Tax Act via the Finance Bill in the upcoming Budget session of Parliament in January-February, 2019. According to tax experts, once implemented, the proposals on NPS - which have already been approved by the Union Cabinet - would benefit both the Central government employees as well as other NPS subscribers. "In addition to increase in the government contribution from 10 to 14% for the Central government employees, the proposals include enhancing the non-taxable corpus on closure of NPS from 40% to 60%. Given the mandatory requirement to purchase annuity to the extent of 40% of the corpus on closure, effectively no taxation is triggered on withdrawal. The NPS therefore is moving towards an attractive EEE regime,"\u00a0says Saraswathi Kasturirangan, Partner, Deloitte India. According to her, the annuity payouts continue to be taxable in the year of receipt. Deduction available for employee's contribution to Tier I account under Section 80C (within the overall ceiling of Rs 1.5 lakh) is now being extended to Tier II account (voluntary saving account of NPS). Additional deduction for self-contribution (up to Rs 50,000) is available only for contributions to Tier I account. NPS, in fact, has attractive tax benefits. Employer\u2019s contribution of up to 10% of salary (i.e. basic and dearness allowance) is exempt. Employees contribution to Tier I account, now being extended to Tier II of NPS, is eligible for deduction within the overall ceiling of Rs 1.5 lakh under Section 80C. Additional deduction on self-contribution to Tier I (up to Rs 50,000) is also available. However, withdrawal of corpus from the NPS account is only partially tax exempt. To illustrate, upon retirement, 40% of the corpus is mandatorily required to be used to purchase Annuity. While the balance of 60% is withdrawable as a lumpsum, exemption is available only up to 40%, meaning 20% of the lump sum withdrawal is taxable. \u201cWith the current announcement, however, the entire 60% of the accumulated corpus will be exempt. In a way NPS is also moving to an Exempt-Exempt-Exempt regime, clearly indicating the focus of the government in promoting NPS. However, it is important to note that the annuity received is a taxable income,\u201d informs Kasturirangan. It may be noted that taxability of NPS was a big concern earlier, which made many investors wary of it. For instance, unlike EPF which is 100% tax exempt on retirement, only 40% of the accumulated NPS corpus was exempt from tax at retirement. However, the new rules will surely make NPS more attractive for investors.