In the case of an NPS contribution for state government employees, deductions are made from an individual's monthly salary, and the employer then contributes the same amount. Together this amount is then submitted to the NPS account of employees.

Once submitted, these funds available under the NPS scheme for state govt employees are then invested in various areas to generate maximum returns. Moreover, dedicated fund managers are in charge of managing these funds.

As per the present guidelines of the Pension Fund Regulatory and Development Authority (PFRDA), the State Government enforces these schemes through three Pension Fund Managers (PFMs) –

The proportion of the pension fund which is contributed to these three PFMs is finalised by the respective state governments mentioned in the Statement of Transaction. The proportion is as follows.

In the NPS application form for state government employees, individuals need not mention any details of these schemes.

Nirmala Sitharaman, Finance Minister of India, in the Union budget for 2022 has brought equivalence between the state and central government employees regarding their contribution of an employer to NPS. Accordingly, the contribution towards NPS for state government employees has been raised from 10 % to 14%. The state government will also contribute 14%, matching an employee's contribution to this account.

The contribution made by an employer for NPS Tier-1 is entitled to income tax benefits under section 80CCCD (2) of the Income Tax Act, 1961. Moreover, state government employees can also claim a tax deduction for up to 14% of their basic salary and DA. The tax exemption limit has also been raised u/s 80CCCD (2).

The concept of the NPS scheme for state govt employees and individuals largely remains the same, but there are a few differences.

Contribution: The NPS contribution is received from both the employer and employee. The state government's contribution has been hiked to 14% of salary and dearness allowance (DA). The individual contribution, however, remains unchanged.

Subscriber registration: The registration form is routed via PoP for individuals. Whereas, for government employees, it is completed through a nodal officer.

Process of contribution: For government employees, this deduction is made through salary deduction. Furthermore, the respective authorities remit these funds to the partner financial institutions. Alternatively, individuals can initiate and complete this process by themselves.

Online accessibility: PRAN is to be used by government employees for accessing their NPS accounts. An individual has to follow the same procedure to get online access to NPS.

Choice of investments: Even though the selection of asset class does not change for individuals and government employees, their allocation needs to be specified under one PFM. For individual contributions, account holders can shift their investments across fund managers. However, government employees can only move the incremental flow to other fund managers. Whereas the legacy contribution only follows the default model.

Tax Benefit on Contribution Amount: For government employees, tax benefit u/s 80C is also offered on Tier -2 NPS contribution within the upper capital limit of Rs.1,50,000 with a 3-year lock-in period.

Tax on partial withdrawal: Partial withdrawal of up to 25% of the offerings done by the NPS Tier-1 account holder is tax-exempt.

Tax on Maturity Benefit: Lump sum withdrawal up to 60% of total pension amount during superannuation is free from taxes.

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Directorate of Treasuries & Accounts (DTA): It play a supervisory role and its main function is to monitor the performances of the Nodal Offices under its jurisdiction.

District Treasury Office (DTO): They provide the subscriber’s details to CRA and remits the funds to Trustee Bank which in turn transfers the funds to Pension Fund Mangers (PFMs) for investment. Units are allotted to the subscriber’s PRAN based on their contribution amount.

Drawing and Disbursement Officer (DDO): They act as an interface between the DTO and the subscriber. DDO deducts the contribution from employee’s salaries and provides information to DTO about subscriber pension contribution.