Deduction 80CCD, 80CCD(1), 80CCD(1B), 80CCD(2) of Income Tax Act

Deduction 80CCD – Deduction for NPS (National Pension Scheme) A.Y. 2022-23: The Income Tax Department of India offers a deduction of 80CCD to taxpayers for making contributions towards the National Pension Scheme (NPS) or the Atal Pension Yojana (APY). The deduction is availed under Section 80CCD and is available only to individuals. This section also covers employer contributions to NPS.  Entities such as HUF cannot avail of a deduction of 80ccd under this section. Whereas, the individual taxpayer may or may not be a resident of India.

National Pension Scheme (NPS) is a voluntary contribution scheme launched by the Government of India. Earlier, the scheme was only available to Government employees. Post-2009, this scheme is open to all and even non-salaried people can invest in the same. Investment in NPS allows taxpayers to gain tax benefits during contribution as well as maturity.

Quick Summary

Deduction 80CCD Contribution to Pension Scheme of Central Government/New Pension Scheme/Atal Pension Yojana
Eligible Assessee Individual
Amount of Deduction
80CCD (1) Salaried Employee Employees Contribution (Self) or 10% of Salary Whichever is Lower is Qualified for Deduction u/s 80CCD (1)
80CCD (1) Other Individuals Assessee’s Contribution or 20% of Gross Total Income Whichever is Lower is Qualified for Deduction u/s 80CCD (1)
80CCD (1B) Additional deduction up to Rs.50,000 shall be allowed other than contribution covered u/s 80CCD(1). Section 80 CCD provides for a maximum deduction of Rs 2 lakhs, which includes the additional deduction of Rs 50,000/- allowed under subsection 1B.
80CCD (2) Employer’s contribution to NPS
Tax Treatment
Employer’s contribution will be the first taxable under the head salary as perquisite after that he can get deduction u/s 80CCD (2) as follows.
(i) Employer’s contribution
(ii) 10%/14% of salary (central’s govt employee)
whichever is lower

Example

80CCD (1) Other Individuals

1) Assessee’s Contribution – Rs.1,50,000 in NPS

2) Gross Total Income – Rs.5,70,000

  • 20% of Gross Total Income (GTI) = – Rs. 1,14,000
  • Actual Contribution – Rs. 1,50,000

The eligible amount of deduction whichever is lower i.e. 1,14,000 u/s 80CCD (1)

You can choose any one option from the following to get an extra deduction u/s 80CCD (1B). Choose where you will get more benefits. In this case, the 2nd option will have more benefits.

1st Option

The remaining amount will be allowed u/s 80 CCD(1B) (150000-114000) i.e. 36,000

2nd Option

He can also first get deduction u/s 80CCD (1B) i.e. Rs. 50,000 (max deduction) then  remaining amount of deduction i.e. (1,50,000 – 50,000) 1,00,000 u/s 80CCD(1)

Eligible Amount of Deduction 80CCD

Currently, a taxpayer is eligible to get ₹1,50,000 as a deduction under Section 80CCD. Additionally, during the 2015 Budget, another addition of ₹50,000 was made by Finance Minister, Arun Jaitley under new sub-section 1B. Therefore, currently, a taxpayer can claim a total of ₹2,00,000 as a deduction by combining Section 80CCD and Section 80C. Aggregate amount of deduction u/s 80C,  80CCC and 80CCD(1) is restricted to Rs.1,50,000 vide Sec 80CCE. However, deduction u/s 80CCD (1B) in respect of deposit by the assesee in the pension scheme upto maximum of Rs. 50,000 and u/s 80CCD(2) (in respect of contribution by Central Govt/employer to the pension scheme) shall be available in addition to this limit.

There are two subsections of Section 80CCD deductions: Section 80CCD(1) and Section 80CCD(2). Employers make contributions to pension funds on behalf of their employees, and taxpayers make contributions on their own behalf.

  • Section 80CCD(1): Contributions to the National Pension System or Atal Pension Yojana made by the government, private or self-employed individuals, are eligible for a tax deduction up to Rs.1,50,000.
  • Section 80CCD(1B): The deduction under this subsection may be increased by 50,000 over and above the deduction permitted by Section 80CCD(1).
  • Section 80CCD(2): Section 80CCD(2) allows deductions for employer contributions to an employee’s pension fund. There is a limit of 10% deduction from the employee’s basic salary plus the dearness allowance (DA), which can be taken out as a deduction.
  • Should You Invest in NPS – Check Here

Max Amount of Deductions (80CCD, 80CCC, 80C)

The maximum limit for claiming deduction under Section 80CCD is ₹ 2,00,000:

  • Section 80CCD(1) allows a claim for up to Rs. 150,000
  • Section 80CCD(1B) allows for an additional claim of 50,000.
  1. A deduction can be claimed for certain investments under section 80C, while deductions specific to NPSs and APYs are subject to section 80CCD. The total deductions allowed for both sections are 1,50,000.
  2. Section 80CCD(1B) allows for an additional claim of 50,000. So it will become Rs.2,00,000.
  3. A total deduction limit of Rs.2,00,000 is allowed under Sections 80C + 80CCC + 80CCD(1) + Section 80CCD(1B) of the Income Tax Act.

Deduction 80CCD for Contribution made by the employer

As per the prevailing rules, if an employer is contributing towards his employees’ NPS, then such amount shall qualify for a deduction of 80ccd under the books of employees. Section 80CCD(2) specifically deals with this scenario and allows employees to claim the deduction even if the contribution is coming from the pocket of their employer. The provisions of this section only apply to salaried employees and are not applicable to self-employed persons.

Employer’s contribution to NPS
Tax Treatment
Employer’s contribution will be the first taxable under the head salary as perquisite after that he can get deduction u/s 80CCD (2) as follows.
(i) Employer’s contribution
(ii) 10%/14% of salary (central’s govt employee)
whichever is lower

Taxability on Maturity

  • The amount paid by assessee on closing his account is exempt up to 60% (the remaining 40% is taxable) of the total amount payable to him. Nominee legal heirs are fully exempt when they receive money from NPS on the death of an employee or non-employee.
  •  Tax implication would not apply to subscribers from recognised Provident Funds and Superannuation Funds transferring their corpus to NPS.
  • An employee who withdraws from NPS in part will be exempt from payment up to 25% of his contributions (non-salaried employees will be fully taxable).

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