If a Government employee contributes towards Tier-II of NPS, the tax benefit of Section 80C will be available to them.
NPS Tier 2 Tax Benefits: The tax benefit for government employees for investing in NPS Tier II account has been notified by the government. The central government through a gazette notification dated July 7, 2020, has introduced the National Pension Scheme Tier II- Tax Saver Scheme, 2020. 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.
When it comes to saving tax in NPS, the government employees compared to non-government employees or self-employed have an advantage over the other subscribers.
The minimum amount of contribution to activate the specified account shall be Rs 1000 and a minimum amount of subsequent contribution shall be Rs 250. The contribution made under this scheme shall have a lock in period of three years from the date of credit of amount to the specified account. The contribution made to the specified account shall not be permitted to be assigned, pledged or hypothecated during the lock-in-period.
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.
Such investments by the NPS subscribers (non-government) have to be made into the NPS Tier I account in order to avail deduction from income and save tax. NPS has two accounts – Tier I, and Tier II account – while the former is the default account that one has on opening NPS account into which the initial contribution goes into. The Tier II is, however, an optional account and one can additionally open it to park savings in it as it has no lock-in period.