Good news for government employees! Now, you can save more income tax; here is how

There is good news for government employees as they can now save more tax. Earlier this week, the government had issued a notification, announcing more income tax benefits on NPS Tier II account. The central government through a gazette notification dated July 7, 2020, has introduced the National Pension Scheme Tier II- Tax Saver Scheme, 2020. 

As part of this scheme, the Central government employees can save an additional tax up to Rs 1.50 lakh investment under Section 80C by contributing towards Tier-II account of NPS. However, the investment in the Tier-II account will have a lock-in period of 3 years.

The minimum amount of contribution required to activate the NPS Tier 2 account shall be Rs 1000 and the minimum subsequent contribution shall be Rs 250. Contribution made to NPS Tier-II account can neither be assigned, pledged nor be hypothecated during the lock-in-period, as per the notification. 

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This allows the government employees to save more when compared to non-government employees and self-employed people.

For those unaware, NPS has two accounts - Tier I and Tier II. Tier I is the default account for tax benefit purpose and Tier II account is optional. The Tier I account is opened by default when a person invests in NPS. 

The government provides income tax benefits under Section 80CCD (1), Section 80CCD(1B) and Section 80CCD (2) of the I-T Act. You can save an additional Rs 50,000 invested in NPS Tier-I account under Section 80CCD (1B) of the Income Tax Act. This benefit is applicable to both salaried and self-employed individuals.

If your employer is also contributing towards your NPS account, an additional deduction of up to 10% of salary (basic and DA) qualifies for income tax deduction under Section 80CCD(2).