Does NPS Tier II offer tax benefits?

I invest in both NPS Tier I and Tier II accounts. I know that Tier I offers tax benefits, but can I also claim deductions on my Tier II investments? If yes, under which sections and tax regime? — Anonymous

Unfortunately, NPS Tier II is not designed for tax savings. Only central government employees have the option of a tax saver scheme, which comes with a three-year lock-in and tax benefit under Section 80C.

On the other hand, NPS Tier I does come with tax benefits, though it has withdrawal restrictions.

The tax benefits on Tier I contributions depend on whether you follow the old or new tax regime.

Under the old tax regime:

• Deduction of up to Rs 1.5 lakh under Section 80C
  
• An additional deduction of Rs 50,000 under Section 80CCD(1B)
  
• Employer's NPS contribution under Section 80CCD(2) - up to 10 per cent of your basic salary and dearness allowance (or 14 per cent for government employees), over and above the limits mentioned above

Under the new tax regime:

• Only the employer's NPS contribution under Section 80CCD(2) is eligible for tax benefits. Whether you are a government or private sector employee, the limit for employer contributions is 14 per cent of your basic salary and dearness allowance.

Also read: NPS investor? Don't make this mistake

This article was originally published on March 07, 2025.