The investments in tier II account of National Pension System (NPS) will soon become eligible for tax deductions under Section 80C for central government employees. In order to avail this, contributions by the central government employees in tier II account should be locked in for three years, according to recent notification.

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Earlier, income tax benefits were only available for tier 1 account.

While tier 1 account is a mandatory employer contribution in case of government employees, it is voluntary in case of corporates, according to Amit Sinha, executive vice president, NSDL e-Governance.

"Both government and non-government employees can avail tax-saving benefit of NPS by investing in Tier-I under three sections of the Income-tax Act, 1961 i.e. (i) Section 80CCD (1), (ii) 80CCD (2), and (iii) 80 CCD (1b)," says Sameer Kaul, CEO and MD of TrustPlutus Wealth Managers.

Subscribers can claim tax deduction for the contribution in tier I account up to 10 percent of gross income under Section 80 CCD (1) with an the overall ceiling of Rs 1.5 lakh under Section 80 CCE, as per the current rule.

Apart from this, an additional deduction for the investment up to Rs 50,000 in NPS (tier I account) is exclusively available for NPS under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of Income Tax Act 1961.

Additional deduction is available under Section 80 CCD(2) in tier 1 account.

"In case of central government employee, additional deduction is available up to 14 percent of salary (basic + DA) under Section 80 CCD(2) irrespective of any limit, over and above the overall ceiling of Rs 1.50 lakh under Section 80 CCE. For other subscribers, it is 10 percent of salary (basic +DA)," explains Sinha.

The subscriber can either apply for an NPS account by visiting a Point of Presence (PoP), or do it online through the e-NPS website.

To open an NPS individual account online one should have the mobile number, email id, an active bank account with internet banking facility, Aadhaar number with a mobile number registered with it, scan copy of photograph and cancelled cheque.

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First Published:Aug 11, 2020 8:10 PM IST