1 min read.Updated: 15 Jul 2020, 12:12 PM IST Written By Nikhil Agarwal
NPS tier-II is a voluntary account and subscribers can invest as per their convenience
There are neither any maintenance charges nor exit load on withdrawal
NEW DELHI :
With the finance ministry notifying new National Pension System (NPS) rules this month, central government employees are now eligible to claim income tax deduction under Section 80C on their tier-II NPS accounts. The move benefits approximately 18 lakh central government employees covered under NPS.
Contributions made to Tier-II NPS accounts are now eligible for deduction under Section 80C if the amount is locked-in for a minimum of three years. However, the maximum tax deduction under Section 80C cannot exceed the overall limit of ₹1.5 lakh in any given financial year.
Having an NPS tier-II account is optional while the tier-1 account or the retirement account is mandatory. Under the rules, central government employees will have to contribute a minimum of ₹1,000 to activate the tier-II account while an investment of ₹250 is required in the subsequent years.
5 things to know about new NPS rule for central government employees
1) NPS tier-II account has now become part of the basket of income tax saving options under the 80C spectrum which includes PPF, EPF, life insurance, NSC, etc.
2) Just like mutual fund ELSS schemes, NPS tier-II account of government employees offers the lowest lock-in period of just 3 years to enjoy income tax benefits.
3) "After the 3-year lock-in to gain tax benefits, the subscriber will be able to enjoy liquidity on investments in tier-II. So, tax benefit coupled with the basic benefit of tier-II i.e., element of liquidity, now makes tier-II an excellent investment option," Amit Sinha, Executive Vice President, NSDL e-Governance, said. NSDL is the Central Record Keeping agency for NPS.
4) Unlike the popular mutual fund ELSS, investing in NPS Tier II is much easier and is almost a zero maintenance cost product. "It can also be seen as a GPF account of Government employees where withdrawals are allowed for short term needs with applicable tax benefits. Through this announcement, we expect that Tier II will attract more penetration," Sinha said.