The Pension Fund Regulatory and Development Authority (PFRDA) has issued the operational guidelines for the NPS Tier-II Saver Scheme, 2020. This comes a month after the government had notified the National Pension Scheme (NPS) Tier-II tax saving scheme for the employees of central government.
The PFRDA issued a new circular stating that if a government employee contributes towards Tier-II of NPS, the tax benefit available under Section 80C for deduction up to Rs 1.50 lakh will be applicable to that investment, provided the investment remain locked-in for 3 years.
This means that government employees will now have the option to operate three accounts. Out of these, the first (Tier I) account is mandatory for all. The second account, Tier-II comes with no restriction on withdrawal and no tax benefit and the third one is Tier-II with tax benefit along with 3 years lock-in period. However, in the Tier-II account that provides tax benefit, investors will have only one option so far as investment choice and allocation of investment is concerned.
“It will be a composite scheme with the following investment limits for the pension funds: Equity: 10%-25%, Debt: up to 90%, Cash/Money Market/Liquid Funds- up to 5%,” the PFRDA circular mentioned.
The subscribers will have the option to choose any Pension Fund (PF) to manage their money. They will be allowed to have a maximum of 3 pension funds separately for National Pension Scheme Tier II- Tax Saver Scheme, 2020. The circular also states that no withdrawals will be allowed during the lock-in period of three years and the corpus can be withdrawn by his nominee or legal heir.
In case of pre-mature closure of Tier-I account, contributions to NPS Tier-II Tax Saver account will not be allowed and that account will be closed after completion of lock-in period.