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. 

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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).