CBDT notifies National Pension Scheme Tier II- Tax Saver Scheme, 2020 under section 80C: CBDT vide Notification No. 45/2020 dated 07.07.2020 has notified National Pension Scheme Tier II- Tax Saver Scheme, 2020 under clause (xxv) of section 80C(2) introduced by the Finance (No. 2) Act, 2019.
Finance (No. 2) Act, 2019 has introduced a new item of deduction under section 80C for Central Government employees for investment in NPS Tier-II account.
In order to enable the Central Government employees to have more options of tax-saving investments under National Pension System, section 80C is amended so as to provide that any amount paid or deposited by a Central Government employee as a contribution to his Tier-II account of the pension scheme shall be eligible for deduction under the said section.
It should be noted that under the provisions of section 80CCD of the Income-tax Act, a Central Government employee is eligible to claim deduction in the computation of his total income in respect of any contribution by the Central Government to the NPS (Tier-I) account of the employee.
The deduction for a contribution to NPS Tier-II account is available subject to the following conditions as specified in section 80C(2)(xxv)-
1. The deduction is available only to a Central Government employee.
2. The deduction is available for his contribution to a specified account of the pension scheme referred to in section 80CCD.
3. The contribution is made for a fixed period of not less than three years.
4. The contribution is made in accordance with the scheme as may be notified by the Central Government in the Official Gazette.
The Central Government has now notified the National Pension Scheme Tier II- Tax Saver Scheme, 2020 under section 80C(2)(xxv) vide Notification 45/2020 dated 07.07.2020.
Prior to this amendment, there was no tax benefit for making contributions to NPS Tier-II account to any assessee. This benefit is now only extended to central government employees and not to any other employees viz state government employees, private sector employees, etc though they can invest in NPS Tier II account voluntarily without any tax benefit of deduction from the computation of total income.
The National Pension Scheme (NPS) is a pension scheme which was launched in 2004 only for government employees. Later in 2009, it was extended and opened to all employees.
There are two types of NPS accounts – Tier I and Tier II.
The NPS Tier-I account is the primary NPS account and offers the additional tax benefit of upto Rs. 50,000 under section 80CCD(1B) to all the categories of NPS subscribers.
A Tier-II NPS account is a voluntary account which one can open only if he has a Tier I account. As compared to a Tier I account, Tier II accounts offer more flexibility in terms of deposits and withdrawals since Tier II accounts have no attached tax benefits.
The contribution made in the National Pension System (NPS) qualifies for tax benefits under the Income Tax Act, 1961. One can avail tax benefits under Section 80CCD(1), Section 80CCD(1B) and Section 80CCD(2) for contribution in NPS (Tier-I) account.
Any individual who is a Subscriber of NPS can claim tax benefit under Section 80CCD(1) within the overall ceiling of Rs. 1,50,000 under Section 80CCE for his own contribution to NPS Tier-I account. In case of a salaried individual, the deduction is limited to 10% of the salary whereas for a self-employed individual, the deduction is limited to 20% of his gross total income.
Additional Tax Benefit is available to Subscribers under Corporate Sector, u/s 80CCD(2) of Income Tax Act. Employer's NPS contribution of upto 10% of salary (14% in case of a Central Government employee) is deductible from taxable income, without any monetary limit. Simultaneously, the Employer’s Contribution towards NPS accounts of the employees up to 10% of salary can be claimed as deduction while computing the business income of the employer. This is applicable for NPS (Tier I account) only.
An additional deduction for investment up to Rs. 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under section 80CCD(1B). This is over and above the deduction of Rs. 1,50,000 available under section 80C/80CCE of Income Tax Act. 1961. As per Section 80CCE, the aggregate amount of deduction under Section 80C, 80CCC and 80CCD(1) cannot exceed Rs 1,50,000 in a financial year.
Pension Fund Regulatory & Development Authority (PFRDA) is the regulator of NPS.
Read more on NPS
Income Tax Deductions for Salaried Employees FY 2019-20
Is Deduction for NPS available under New Tax Section 115BAC
As per the National Pension Scheme Tier II- Tax Saver Scheme, 2020, the minimum amount of contribution to activate the NPS Tier-II account is Rs. 1,000 and the minimum amount of subsequent contribution shall be Rs. 250 only.
Further, the contribution made under the National Pension Scheme Tier II- Tax Saver Scheme, 2020 shall have a lock-in period of three years from the date of credit of amount.
The contribution made shall not be permitted to be assigned, pledged or hypothecated during the lock-in-period.
Read the full text of the Notification No. 45/2020 dated 07.07.2020 on National Pension Scheme Tier II- Tax Saver Scheme, 2020.
MINISTRY OF FINANCE
(Department of Revenue)
(CENTRAL BOARD OF DIRECT TAXES)
NOTIFICATION
New Delhi, the 7th July, 2020
S.O. 2232(E).—In exercise of the powers conferred by clause (xxv) of sub-section (2) of section 80C of the Income-tax Act, 1961 (43 of 1961), the Central Government hereby makes the following scheme, namely:—
1. Short title and commencement. - (1) This scheme may be called the National Pension Scheme Tier II-Tax Saver Scheme, 2020.
(2) It shall come into force from the date of its publication in the Official Gazettee.
2. Definitions. - (1) In this scheme, unless the context otherwise requires,—
(a) “Act” means the Income-tax Act, 1961 (43 of 1961);
(b) “authority” means the Pension Fund Regulatory and Development Authority established under sub-section (1) of section 3 of the Pension Fund Regulatory and Development Authority Act,2013 (23 of 2013);
(c) “investment” means contribution in an specified account by the Central Government employee in accordance with the scheme;
(2) The words and expressions used herein and not defined but defined in the Act shall have the same meaning as respectively, assigned to them in the Act.
3. Investment.- (i) The assessee, being a Central Government employee, shall make contribution to the specified account which has been activated by the authority in accordance with the provisions of this scheme read with the operational guidelines, if any, issued by the authority in this regard on or after the date of commencement of this scheme.
(ii) The minimum amount of contribution to activate the specified account shall be one thousand rupees and minimum amount of subsequent contribution shall be two hundred and fifty rupees.
4. Lock-in-period. - 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.
5. Transferability. - The contribution made to the specified account shall not be permitted to be assigned, pledged or hypothecated during the lock-in-period.
[Notification No. 45 /2020/ F. No.370142/26/2019-TPL]
GUDRUN NEHAR, Director Tax Policy and Legislation)
Download Copy of Notification No. 45/2020 dated 07.07.2020 on National Pension Scheme Tier II- Tax Saver Scheme, 2020 in pdf format.
Further Readings
Exemptions and Deductions available under Old and New Tax Regime after Section 115BAC
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