Self-Employed Cannot Claim Deduction For NPS Tier-II Account

Central government employees can claim deduction for contribution to NPS Tier-II account under Section 80C. An amount equal to 1.50 per cent of the deposit amount will be deducted for closure of SCSS account after one year, but before completion of two years. If you have more than two self-occupied houses owned by you, you have to choose any two houses as self-occupied and pay notional market rent on the others for taxation

Balwant Jain

Updated on: 27 April 2024 12:36 pm

I am self-employed. Can I claim any tax rebate for investment made under National Pension System (NPS) Tier II account under any provisions of the income tax laws?

Answer: Typically, contributions made towards Tier-I account of your NPS are eligible for deduction under Section 80 CCD of the Income-tax Act, 1961. However, central government employee are eligible for claiming deduction for contribution made towards their Tier-II account under Section 80C within the overall limit of Rs. 1.50 lakh with three year’s lock-in.

Since you are self-employed, you cannot claim any deduction for contribution made towards your NPS Tier-II account under any provisions of the income tax laws.

I had deposited Rs. 15 lakh in January 2023 under the Senior Citizen Saving Scheme (SCSS). I am getting interest on it on a quarterly basis. If I prematurely close the account now, how much loss will I incur? Will it be the amount of interest received or 1.5% of the principal amount?

Answer: The deposit account under SCSS has a tenure of five years, but premature withdrawals are permitted. In case you withdraw money from your SCSS account within one year from the date of deposit, the amount of interest paid to you till date will be recovered from the amount of deposit.

However, in case you close the account after one year, but before completion of two years, an amount equal to 1.50 per cent of the deposit amount will be deducted. The amount of deduction will be equal to 1 per cent of the deposit, if the money is prematurely withdrawn after two years, but before completion of five years.

Since you have already completed one year, the penalty for premature withdrawal from your SCSS will only be 1.50 per cent of the deposit amount and not the interest paid to you. In case you had availed of tax benefit under Section 80C in respect of these deposits, the same shall get reversed and will be treated as your income of this year in case you withdraw the money before completion of five years.

What are the tax implications if I own two houses in my name? I am residing in one while the other one is let out? I am paying tax on rent received every year.

Answer: The tax laws allow you to have maximum of two self-owned houses as self-occupied. If you have more than two self-occupied houses owned by you, you have to choose any two houses as self-occupied and the rest of the house/s will be treated as deemed to have been let out. In respect of deemed to have been let out house/s you have to offer notional (not nominal) market rent for taxation.

As you own two houses, one of which is let out and you are also paying tax on the income received on it, what you are doing is perfectly alright.

The author is a tax and investment expert

(Disclaimer: Views expressed are the author’s own, and Outlook Money does not necessarily subscribe to them. Outlook Money shall not be responsible for any damage caused to any person/organisation directly or indirectly.)