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NPS Tier II tax saver account does not offer any investment choice to the subscriber.
NPS Tier II tax saver account does not offer any investment choice to the subscriber.

NPS Tier II account income tax benefits: Rules for govt employees released

  • The asset class allocation is mix of equity, debt and cash/money market/liquid funds under the NPS Tier II account income tax-saving scheme

After the government last month notified National Pension System (NPS) tier-II account as eligible for tax deduction under Section 80C, pension regulator Pension Fund Regulatory and Development Authority or PFRDA has come out with detailed guidelines. Earlier, NPS tier-II account had no lock-in, but now such tax-deductible contributions by the government employees will be locked in for three years.

Here are 10 things to know about NPS Tier II income tax saver scheme:

1) Only central government employees are eligible for income tax benefits under NPS Tier II scheme. Private sector employees contributions to the NPS tier-II account will continue to remain free from lock-in but will not get tax deductions.

2) The central government employee's contribution towards Tier-II of NPS for availing income tax deduction under Section 80C (up to 1.5 lakh) per year will have a lock-in period of 3 years.

3) The central government employee who wants to avail this tax benefit will have three NPS accounts: Tier-I ( which is mandatory account), Tier-II (optional and freely withdrawable) and Tier-II (optional account with Section 80C benefit but with a three-year lock-in).

4) The NPS Tier II tax saver account does not offer any investment choice to the subscriber.

5) The asset class allocation mix of equity (10% to 25%), debt (up to 90%) and cash/money market/liquid funds (up to 5%).

6) No withdrawal will be allowed during the lock-in period of three years. However, in case death of the subscriber, the corpus can be withdrawn by the nominee/legal heir.

7) In case of closure of Tier-1 NPS account due to exit from NPS, further contributions will not be allowed to NPS Tier II tax saver scheme. NPS Tier II tax saver scheme will be closed after completion of the lock-in period.

8) Subscriber to NPS Tier II tax saver scheme can choose any pension fund.

9) But the subscriber will be permitted to have maximum of three pension funds separately for NPS Tier II tax saver scheme.

10) Pension fund change will be allowed only after the lock-in period. Such reinvestments will treated as fresh investments and again will be locked in for three years.

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