Contributory Pension Fund under New Pension Scheme
The scheme has been implemented for the Central Government or other employees recruited on or after 01 January 2004.
About Scheme
There will be two tiers under this scheme, Tier-I and Tier-II. Tier-I is compulsory for all the the employees recruited after 01 Jan 2004. In tier-I, 10% of BP, DP, DA and IR shall be deducted from salary of the employee and equal matching contribution shall be made by the employer. An individual unique Permanent Pension Account Number (PPAN) is required to be issued by the employer to each employee. This fund is non- withdraw-able until retirement. At exit, it would be mandatory for him to invest 40% of pension wealth to purchase an annuity (80% in case of those opting out before retirement age) from IRDA (Insurance Regulatory and Development Authority) regulated insurance company, which will provide for pension for the lifetime to retired employee or spouse as applicable. The accounts of the funds under this scheme shall be maintained by CPAO (Central Pension Accounting Office) at present.
Tier-II will be kept in a separate account that will be withdraw-able at the option of Government employee and is optional. Government will not contribute to Tier-II account and this Tier-II account shall not be made operative until regular PFRDA (Pension Fund Regulatory and Development Authority) becomes functional as per provisions of Fin. Cir. 10/2007 sl no. 5 to 7. Moreover, Tier_II is optional and is at the discretion of employee (Fin. Cir. 10/2007 sl no. 1). (The complete detail can be had from Finance Circular 10/2007 dated 26/9/2007.)

ABOUT CIRCULAR NO. 9 /2008 [F.No.275/192/2008-IT(B)]NEW DELHI, the 29th September, 2008 GOVERNMENT OF INDIA MINISTRY OF FINANCE (DEPARTMENT OF REVENUE) CENTRAL BOARD OF DIRECT TAXES
Definition of Salary (Page 15 of Circular)
Any contribution made in excess of 10% by the Government or any other employer to the account of the employee under the New Pension Scheme as notified vide Notification No. F.N. 5/7/2003- ECB&PR dated 22.12.2003(enclosed as Annexure-VA) and referred to in section 80CCD (para 5.4(C) of this Circular) shall also be included in the salary income.

Para 5.4 C. of Circular, Deductions Under Chap VI A of the Act (Page 30)
As per the provisions of section 80CCD, where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004, has in the previous year paid or deposited any amount in his account under a pension scheme as notified vide Notification No. F.N. 5/7/2003- ECB&PR dated 22.12.2003, he shall be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed ten per cent of his salary in the previous year. Where, in the case of such an employee, the Central Government makes any contribution to his account under such pension scheme, the employee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government as does not exceed ten percent of his salary in the previous year. Where any amount standing to the credit of the assessee in his account under such pension scheme, in respect of which a deduction has been allowed as per the provisions discussed above, together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any financial year,—
(a) on account of closure or his opting out of such pension scheme; or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out,
the whole of the amount referred to in clause (a) or clause (b) above shall be deemed to be the income of the assessee or his nominee, as the case may be, in the financial year in which such amount is received, and shall accordingly be charged to tax as income of that financial year.
The aggregate amount of deduction under sections 80C, 80CCC and
80CCD shall not exceed Rs.1,00,000/- (Section 80CCE)

My Concerns About the Financial Implications of this scheme
1 The Governmnt share is to be include in income of assessee and allowed deduction under sec 80 CCD.
2 A deductionis allowed under section 80CCD on individual and Government contribution of 10% each and reflecting both these contributions while computing total salary. Therefore, there is reduction in the saving allowed by an amount equal to the deductions allowed under 80CCD (For employer contribution) when compared to an employee not covered under this scheme( Max Limit is Rs100,000/-).
3 The returns at the time of exit are taxable as stated I Circular 9/2008 of IT Deptt. (though pension has to be taxable). Now,
i) The scheme is compulsory for all the employees recruited on or after 01 Jan 2004.
ii) The investment is non withdraw-able up to the age of retirement i.e. 58/60 years (around 30 years of investment period on an average).
iii) The fund is created through employees to avoid financial loading of Governments towards retired employees.
iv) Any investment done for more than 5 years with any IRDA regulated company, EPF scheme, PPF(15 year lifecyclescheme) or GPF is non-taxable when received at the end.
Hence, my view is that,
Deduction allowed under Sec 80CCD on employer contribution should not be included under 1 lakh limit of sec 80 C,
Terminal benefits under this new pension scheme should be made non-taxable. (placed under EEE Regime of Income Tax),
Views are based on the information collected through Fin Circular 10/2007 dated 26.9.2007 regarding New Pension Scheme and ABOUT CIRCULAR NO. 9 /2008 [F.No.275/192/2008-IT(B)]NEW DELHI, the 29th September, 2008 GOVERNMENT OF INDIA MINISTRY OF FINANCE (DEPARTMENT OF REVENUE) CENTRAL BOARD OF DIRECT TAXES...