NPS Tier II Tax Saver Scheme 2020 & Benefits

Key Highlight:

Tax benefit of Section 80C will be available to the Government employee if, they contributes towards Tier-II of NPS.

Laws and Regulations:

• Section 80C (2) (xxv) Income-tax Act, 1961 (43 of 1961),
• The Central Government makes NPS TIER II TAX SAVER SCHEME 2020.

Ministry of Finance (Department of Revenue)(CENTRAL BOARD OF DIRECT TAXES) vide Gazette IDCG-DL-E-07072020-220404 and S.O. 2232(E) dated 07th July, 2020 has come out with National Pension Scheme (NPS) Tier II- Tax Saver Scheme, 2020 in exercise of the powers conferred by clause xxv of subsection 2 of section 80C of the Income-tax Act, 1961.

Applicability:

from the date of its publication in the Official Gazette.

Definition Clause:

1. In this scheme, unless the context otherwise requires,
• "Act" means the Income-tax Act, 1961 (43 of 1961);
• “authority” means the Pension Fund Regulatory and Development Authority established under sub-section (1) of section 3 of the Pension Fund Regulatory and Development Authority Act,2013 (23 of 2013);
• "investment" means contribution in a specified account by the Central Government employee in accordance with the scheme;
2. The words and expressions used herein and not defined but defined in the Act shall have the same meaning as respectively, assigned to them in the Act.

Investment:

1. The assessee, being a Central Government employee, shall make contribution to the specified account which has been activated by the authority in accordance with the provisions of this scheme read with the operational guidelines, if any, issued by the authority in this regard on or after the date of commencement of this scheme.
2. The minimum amount of contribution to activate the specified account shall be one Rs. 1000 and minimum amount of subsequent contribution shall be 200 and Rs. 50.

Lock- in-period:

The contribution made under this scheme shall have a lock-in period of three years from the date of credit of the amount to the specified account

Transferability:

The contribution made to the specified account shall not be permitted to be assigned, pledged or hypothecated during the lock-in-period.

NPS Tier 2 Tax Benefits:

If a Government employee contributes towards Tier-II of NPS, the tax benefit of Section 80C for deduction up to Rs. 1.50 lakh will be available to them provided that there is a lock-in period of 3 years.

The contribution made in the National Pension System (NPS) qualifies for tax benefits under the Income Tax Act, 1961. On the amount invested in NPS, one can avail tax breaks under Section 80CCD (1), Section 80CCD(1B) and Section 80CCD (2) of the I-T Act. Importantly, as per Section 80CCE, the aggregate amount of deduction under Section 80C, 80CCC and 80CCD(1) cannot exceed Rs 1. 5 lakh in a financial year.