Benefits of new rules for IT Payers

The Pension Fund Regulatory and Development Authority has issued new rules for the National Pension System Tier-2 (NPS Tier-2) Income Tax Saving Scheme under Section 80C of the Income Tax Act.

According to  the new rules, income tax benefits under the NPS Tier-2 scheme will be available to employees of both government and private sector on the contribution made to NPS.The exemption available in this,  is different from the income tax benefit available under the NPS Tier-I scheme. In easy terms, the  employees will get the benefit of income tax exemption available under both NPS Tier-1 and Tier-2.

For an NPS Tier-2 account holder , there is a  three years lock-in period of investments. So  the account holder will not be able to withdraw any amount up to Rs 1.50 lakh per annum for three years. However, on the death of an NPS subscriber, his nominee or legal heir can withdraw money.

Under the NPS Tier-2 scheme, there will be three NPS accounts of an employee willing to avail tax exemption. The first Tier-1 will be a Mandatory Account. The second Tier-2 will be an Optional Account, from which money can be withdrawn independently. At the same time, the third account will be a tier-2 optional account withe 3 years lock-in period. In this, tax exemption under Section 80C will be available. The exemption amount will not be more than Rs 1.5 lakh in a financial year.

Contribution in NPS Tier-1 account gets a rebate of Rs 50,000 under Section 80 CCD (1B) of Income Tax Act. This exemption is separate from the exemption provided under Section 80CCD (1) on contributions up to Rs 1.5 lakh. It is important to note here that the exemption amount under Section-80C, 80CCC (Investment in Pay-Pension Plan given by an Insurer) and Section-80 CCD (1) (NPS) is 1.5 lakh in a financial year. 

If an NPS Subscriber opts for new income tax slab from April 2020, then special exemption of Rs. 50,000 / – under Section-80 CCD (1B) or Section-80 CCD (1 ) Exemption of Rs 1.5 lakh and under Section 80C will not be applicable. If the taxpayer does not choose the new tax slab, then the old tax rule will apply. Even if you choose the new tax slab, you can claim the income tax exemption on the company’s contribution to the employee’s NPS account.

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