Income-Tax-on-Pension

NPS Tier-II Tax Saver Scheme Notified For Central Government Employees

NPS Tier-II Tax Saver Scheme Notified For Central Government Employees

The Government notified the National Pension System (NPS) Tier-II Tax Saver Scheme, 2020 via notification 45/2020 dated 7th July 2020. The notification provides for tax benefit available to an assessee, being a Central Government employee, on the investment made in the NPS Tier-II scheme, under section 80C(2)(xxv) of the Income Tax Act, 1961. 

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Requirements For Investment in NPS Tier-II Account

The following are some requirements for claiming a deduction of the amount contributed by a Central Government employee in the NPS Tier-II account.

Minimum Investment Criteria

A minimum amount of Rs. 1,000 is required as an initial contribution to activate the NPS Tier-II account. In the next years after the account has been activated, a minimum yearly contribution of Rs. 250 is required.

Lock-in Period

The amounts contributed to the account shall be subject to a lock-in period of three years starting from the date of credit in the account.

Restrictions on Transfer

The amounts lying as contributions in the account shall not be allowed to be assigned, pledged, or hypothecated during the lock-in period of three years. 

Tier-I and Tier-II Accounts in NPS

There are two types of accounts under NPS, namely Tier-I and Tier-II. The difference between the two accounts is that while a Tier-I account is a default account that a person gets when an NPS account is opened and the contributions get accumulated in such an account, a Tier-II account is an optional account that can be opened by a person having access to a Tier-I account. 

Tax Benefits For Tier-I and Tier-II Accounts in NPS

Tax benefit for amounts contributed under Tier-II account is now available after the said notification to the employees of the Central Government under section 80C(2)(xxv) of the Income Tax Act, 1961. The benefit of amounts contributed to an NPS Tier-II account can’t be claimed by anyone other than Central Government employees. The maximum amount of deduction that can be claimed by an individual under this section shall not exceed Rs. 1,50,000 subject to the overall ceiling under section 80CCE.

Section 80CCE states that the maximum amount of deduction that an assessee can claim under section 80C, 80CCC, and 80CCD(1) shall not exceed Rs. 1,50,000 in a financial year.

The tax benefit for amounts contributed by taxpayers in NPS Tier-I is available as per section 80CCD of the Income Tax Act, 1961 as follows:

SectionDeduction Description
80CCD(1)

Any individual subscriber of the NPS is eligible to claim deduction under this section for the amounts contributed to the NPS Tier-I account subject to the ceiling of Rs. 1,50,000 as per section 80CCE.

The amount of deduction can not exceed 10% of the salary for salaried employees and 20% of gross total income in the case of self-employed individuals. 

80CCD(1B)

An additional deduction of up to Rs. 50,000 is available to an individual subscriber of the NPS Tier-I account for amounts contributed to such an account. 

The deduction is over and above the amount of overall ceiling of Rs. 1,50,000 under section 80CCE. 

80CCD(2)

An additional deduction is available under this section for the salaried employees on account of contributions made by their employers to the Tier-I account of NPS. 

The maximum amount that can be claimed by a salaried individual under this section is 14% in the case of a Central Government employee and 10% in the case of other employees. No other monetary ceiling shall apply for this section. 

 

Post by Niti Gupta

Niti Gupta is a Chartered Accountant who has experience working with different industries. She loves to write about anything and everything, but majorly research and write about finance and taxation.