Following last month’s notification by the Government of the National Pension System (NPS) Tier-II account is eligible for tax deduction under Section 80C, detailed guidance has been provided to the Pension Fund Regulatory and Development Authority or the PFRDA. Previously, the NPS Tier-II account had no lock-in, but now these tax-deductible contributions by government employees would 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 entitled to obtain income tax benefits under the National Pension System Tier II program. Private sector employees contributions to the NPS Tier II account will remain free from lock-in, but will not get tax deductions.
2. The contribution of the central government employee to NPS Tier-II for the deduction of income tax under Section 80C (up to 1.5 lakh) per year will be having a lock-in for a period of 3 years.
3. The central government employee who are seeking to make use of this tax advantage must have threeNational Pension Systemaccounts: Tier-I (which is a compulsory account), Tier-II (optional and freely withdrawable) and Tier-II (optional account with Section 80C advantage but with a three-year lock-in).
4. The NPS Tier II Tax Savings Account does not give any any investment choice to the users
5. The asset class allocation mix of equity (10 per cent to 25 per cent), debt (up to 90 per cent) and cash / money market / liquid funds (up to 5 per cent).
6. During the lock-in duration of three years, no withdrawal will be permitted. However, in the event of the death of the subscriber, the corpus may be withdrawn by the nominee / legal heir.
7. In the event of the closure of the Tier-1 National Pension System account due to the exit from the NPS, further contributions to the National Pension System Tier II tax-saving scheme will not be permitted. The NPS Tier II tax saver scheme will be terminated after the lock-in period has been completed.
8. Subscriber of NPS Tier II tax-saving scheme can choose any pension fund.
9. However, the subscriber will be allowed to have a maximum of three different pension funds under the NPS Tier II tax savings scheme.
10. The adjustment in the pension fund will only be permitted after the lock-in period. Such reinvestments will be treated as fresh investments and will be locked in for another three years.