NPS Tier-II Tax Saver Scheme
Also written NPS-TTS · NPS Tier-II Tax Saver Scheme (NPS-TTS) · Tier II Tax Saver Scheme · Tier II – Tax Saver Scheme 2020
A Tier II NPS option for Central Government subscribers with an active Tier I account whose contributions qualify for the old-regime deduction, subject to a three-year lock-in per contribution.
In plain language
The ordinary Tier II account is liquid and earns no tax deduction. The NPS Tier-II Tax Saver Scheme (NPS-TTS) is the single exception — and it is open to Central Government subscribers only.
It behaves like a conservative tax-saving fund inside the NPS: a deduction on the way in, a three-year lock-in, and a portfolio that is mostly debt with a limited equity slice.
The deduction is an old-regime benefit and is shared with every other product in the same Rs 1,50,000 aggregate limit.
How it works
Who. Any Central Government subscriber to the NPS with an active Tier I account.
Tax. Deduction under section 123 read with Schedule XV of the Income-tax Act, 2025 (corresponding to section 80C of the 1961 Act), within the aggregate Rs 1,50,000 limit. Available under the old regime, not the new regime.
Lock-in. Three years from the date the units for each contribution are credited to the PRAN — including any reinvestment. No withdrawal during lock-in, except that on death the nominee or legal heir can withdraw.
Portfolio limits:
| Asset | Limit |
|---|---|
| Equity | 10% to 25% |
| Debt | Up to 90% |
| Cash, money market, liquid mutual fund schemes | Up to 10% |
Pension funds. Any pension fund may be chosen, with a maximum of three separately for NPS-TTS. A change of pension fund is permitted only after the lock-in.
If Tier I is closed, no further TTS contributions are allowed, and the accumulated TTS corpus may be withdrawn on completion of the lock-in.
A worked example
Priya, a Central Government officer under the old tax regime, has already used Rs 90,000 of her Rs 1,50,000 aggregate limit on PPF.
How much TTS earns a deduction this year?
Aggregate limit = Rs 1,50,000
Already used (PPF) = Rs 90,000
Room left = Rs 60,000
She invests Rs 60,000 in NPS-TTS. Anything above that would still be invested, but would earn no further deduction under the same aggregate.
What the scheme may hold with her Rs 60,000:
Equity between 10% and 25% = Rs 6,000 to Rs 15,000
Debt up to 90% = up to Rs 54,000
Cash etc. up to 10% = up to Rs 6,000
The lock-in runs per contribution. She invests Rs 30,000 in June 2026 and Rs 30,000 in February 2027. The first slice is free from June 2029, the second only from February 2030 — each three years from its own credit date.
The tax saved in a 30 per cent slab (illustrative, before cess): 30% × 60,000 = Rs 18,000.
Why NISM asks about it
Chapter 4, section 4.1.3 (Types of NPS Account), covers "Tier II – Tax Saver Scheme 2020" immediately after the Tier II rules, and the note under the Tier I / Tier II comparison table carves it out as the only Tier II tax benefit. Expect recall of the Central Government eligibility, the three-year lock-in, the 10 to 25 per cent equity band, the three-pension-fund maximum and the Rs 1,50,000 aggregate limit.
Common exam traps
- Central Government subscribers only. Not State Government, not All Citizen, not Corporate.
- An active Tier I account is a precondition.
- The lock-in is three years from the credit of each contribution, not from the first investment.
- Equity is 10 to 25 per cent — a floor as well as a cap. Debt up to 90 per cent, cash up to 10 per cent.
- Up to three pension funds for TTS, and no switch during lock-in.
- Rs 1,50,000 is the aggregate section 123 / Schedule XV limit, shared with PPF, ELSS and the rest — not a separate TTS allowance.
- Old regime only. The deduction is not available under the new regime.
- Death is the only lock-in exception stated: nominees or legal heirs can withdraw.
Where this is taught
Free preparation for NISM Series XVIIRelated terms
- National Pension SystemA PFRDA-regulated, defined-contribution retirement scheme in which the subscriber builds a market-linked corpus and must convert part of it into an annuity at exit; there is no guaranteed return.
- Public Provident FundA 15-year government-guaranteed savings account for individuals, at a rate reset quarterly, where the contribution, the interest and the maturity value are all outside tax under the old regime.
- Section 80CThe income-tax deduction for money put into life insurance, provident fund, ELSS, five-year bank deposits, NPS Tier 1, NSC and home-loan principal, capped in aggregate at Rs 1,50,000 a year.
- Tier II accountThe voluntary NPS investment account open only to holders of an active Tier I account, with no withdrawal restrictions, no mandatory annuity and, except for NPS-TTS, no tax benefit.
- Lock-in PeriodThe stretch of time after an investor commits money to a Category III AIF during which they cannot redeem — not fixed by SEBI, but 2 years is common practice.
- Tier I accountThe mandatory NPS retirement account: restricted withdrawals, a 75% equity cap, tax benefits and compulsory annuity purchase with part of the corpus on exit.