National Pension System: Made contribution during extended period? Your NPS a/c may still be freezed!

Due to the Covid-19 lockdown – that created hardship for investors in making last-minute tax-saving investments – the Central Board of Direct Taxes (CBDT) had first extended the deadline for tax-saving investments under Chapter-VIA for the Financial Year (FY) 2019-20 to June 30 and then to July 31, 2020. It also provided the investors an opportunity to keep their Public Provident Fund (PPF), Sukanya Samriddhi Yojana (SSY) and/or National Pension System (NPS) accounts, among others, active by making minimum investment/ contribution during the extended period.

However, there was confusion with NPS initially as the sections were not mentioned in the first announcement, leading to suspension of acceptance of contributions for the Financial Year (FY) 2019-20 by POPs after March 27, 2020 as it takes 2-3 working days for the money contributed to get credited to the respective fund accounts.

The confusion regarding NPS was cleared by the authorities subsequently and the investors resumed contributions for the FY 2019-20.

However, things were not streamlined at the backend of the NPS contribution system, leading to contributions made during the extended period getting credited to FY 2020-21 by default.

Take for example the case of Nitesh Dash (name changed), who failed to contribute within March 31, 2020 due to change in his bank account. As the new bank account was not linked with the NPS database, he failed to make the contribution through his POP, which accepts payments only through Net Banking.

With the office of the POP closed due to lockdown, when he was able to pinpoint the cause of his inability to make contributions, he inquired about the alternative ways and came to know that he may pay through his credit card by creating a login ID with any of the NPS Record Keeping Agencies.

While his effort to do so through NSDL failed, he was able to create a login ID with Kfin Tech, the other NPS Record Keeping Agency.

Due to the initial confusion about tax benefits on NPS contributions, Dash first made the minimum contribution of Rs 1,000 after the end of the first phase of lockdown to keep his NPS Tier-1 Account active.

With the inclusion of section 80CCD(1B) of the Income Tax Act in the ITR-1 Form uploaded on the income tax e-filing site clearing the confusion regarding tax benefits on voluntary contributions to Tier-1 Accounts of NPS, he made another contribution of Rs 49,000 in July through the Kfin Tech site.

After making the payment, the receipt was not generated due to some error. When he revisited the Kfin Tech site to retrieve the receipt, to his dismay, Dash found that receipts of both Rs 1,000 and Rs 49,000 were available under contributions for FY 2020-21 and his NPS account was freezed due to non payment of minimum contribution for the FY 2019-20.

On contacting the Kfin Tech customer care, he was informed that the contributions made during the extended period were credited for the FY 2020-21 by default, as the NPS database was not updated to accommodate such contributions for the FY 2019-20.

Kfin Tech, however, informed him that the NPS systems will be updated after July 31, 2020 to accommodate the provisions of date extension and the account would be unfreezed.

Dash was also told that, it is immaterial if the contributions made during the extended period is for FY 2019-20 or for FY 2020-21 and it is the choice of a taxpayer to take tax benefit for any one of the financial years on such a contribution.

So, the confusion with the contributions for NPS during the extended period is still prevailing and it has to be seen what steps the PFRDA and NPS Trust take to make things clear.

 

Source:- financialexpress

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