Deductions Under Section 80CCD of Income Tax

Section 80CCD allows tax deductions for NPS (National Pension System) and APY (Atal Pension Yojana) contributions. You can maximize NPS tax benefits under section 80CCD.

NPS Deduction Limits

Section	Taxpayer's / Employer's Contribution	Deduction Limit	Available in Old Regime	Available in New Regime
80CCD(1)	Taxpayer's Own Contribution	Up to  ₹1.5 Lakh (combined limit with 80C/80CCC)	Yes	No
80CCD(1B)	Taxpayer's Own Contribution	Up to  ₹50,000	Yes	No
80CCD(2)	Employer's Contribution	10% or 14% of Salary (Basic + DA)	Yes	Yes

What is Section 80CCD?

Section 80CCD relates to tax deduction for contributions made to National Pension System, Unified Pension Scheme (UPS) and Atal Pension Scheme. For salaried class, both employer's contribution and assessee's own contribution can be claimed as deduction. As per the recent notification released by the government, all the tax benefits available to NPS is also made available to Unified Pension Scheme (UPS).

Eligibility for Section 80CCD

• Only individuals who are citizens of India are eligible to claim this deduction
• Even Non-Residents can claim deductions under section 80CCD.
• Both salaried taxpayers and self employed individuals opting for NPS can claim deduction
• Individuals aged between 18 to 70 years only can opt for NPS schemes. Therefore, taxpayers falling within the same age group can only claim deduction under this section.
• If you are opting Atal Pension Yojana, the age limit is restricted within 18 to 40 years.
• Contributions made to Unified Pension Scheme and NPS Vatsalya can also be claimed as a deduction under section 80CCD.

Detailed Analysis - Section 80CCD(1), 80CCD(1B) and 80CCD(2)

Deduction under NPS can be broadly classified into two types and they are broadly dealt under section 80CCD as follows:

• Section 80CCD(1) - Taxpayer's own contribution to NPS
• Section 80CCD(1B) - Additional deduction on Taxpayer's contribution to NPS 
• Section 80CCD(2) - Employer's contribution to NPS

These provisions are explained below in detail.

Section 80CCD(1): Deduction on Assessee's Own Contribution to NPS

• Deduction limit on assessee's own contribution is Rs. 1.5 lakhs under section 80CCD(1).
• The combined deduction limit under section 80C, 80CCC, 80CCD(1) is Rs 1.5 lakh.
• Contributions made to Tier-I account only can be claimed as a deduction.
• Only taxpayers opting for the old regime can claim this deduction.
• The deduction limits for section 80CCD (1) are as follows:

Section 80CCD(1B): Additional NPS Tax Deduction of ₹50,000

• Section 80CCD(1B) provides an additional NPS deduction of up to Rs 50,000 over and above Rs 1.5 lakh limit.
• This allows the taxpayer a deduction of Rs 2 lakhs for his/ her own contribution.
• Rs 50,000 NPS tax benefit is available only under the old regime, and not available under the new regime.

Section 80CCD(2): Deduction on Employer's NPS Contribution

• Section 80CCD(2) limit is different under old and new regimes. Employer's NPS contributions up to 14% (10% under the old regime) of salary can be claimed as a deduction.
• Therefore, section 80CCD(2) deduction on employer's NPS contributions is available under both old and the new regime.
• Central and State government employees can claim 14% of salary as deduction under both the regime.
• Since only employer's contribution is allowed under this section, self employed individuals cannot claim deductions u/s 80CCD(2).
• A tabular summary of section 80CCD(2) deduction limits is below:

Pension Schemes Covered under Section 80CCD

National Pension System

• National Pension System is a comprehensive pension scheme under Pension Fund Regulatory Authority of India. 
• There are two types of account under NPS - NPS Tier-I and Tier-II accounts.
• It is a return based scheme, with various fund managers, qualifying for tax deductions under the Income Tax Act.

Atal Pension Scheme

• The government launched Atal Pension Scheme to provide financial security to the vulnerable sections of the society.
• Indian citizens aged from 18 to 40 years can opt for Atal Pension Yojana.
• Minimum contribution depends on the age of the account holder. It starts from Rs. 42, for 18 year old account holders.

Unified Pension Scheme

• The Central Government launched Unified Pension Scheme in 2024, as an option under the National Pension Scheme.
• This scheme provides an guaranteed return, adjusting to inflation. Therefore, it addresses the returns uncertainties of NPS.
• The existing pension account holders have the option to convert to Unified Pension Scheme.

NPS Vatsalya

• NPS Vatsalya scheme aims at securing financial future of the child.
• While only minors can open this account, only the parents and guardians can operate the account.
• After the child reaches 18 years of age, the contributions made to this account can be partially withdrawn.

Terms and Conditions for Deductions u/s 80CCD

Following are the various terms and conditions governing the deductions under Section 80CCD.

• Deductions under Section 80CCD is mandatory for government employees, for other individuals, it is voluntary.
• Tax benefits availed under Section 80CCD cannot be claimed again under Section 80C, i.e. the combined deduction under Section 80C and 80CCD cannot exceed Rs 2 lakhs.
• The money received from NPS as monthly payments or surrendered accounts will be liable for taxation as per the applicable provisions.
• Any amount received from NPS reinvested in the annuity plan is entirely exempt from taxation. You will be required to produce proof of payment to be eligible for this deduction.

80CCD(1), 80CCD(1B) and 80CCD(2) - A Comparative Analysis

Step-by-Step Guide to claim Deductions u/s 80CCD

1. Keep the necessary documents handy. If you are an employee, form 16 contains the eligible deduction amount under this section. Keep other necessary details like PRAN number handy.
2. Check if the contribution amount as mentioned in Form 16 matches with your payslips. You can also cross verify against your NPS account transaction history.
3. While filing the return, make sure the deduction that you claim is backed by sufficient proofs, and all the required data related to deduction are submitted.

Illustration

Mr N works at an MNC X Ltd, which has contributed Rs 70,000 to the NPS account. His salary structure is as below:

Basic Salary – Rs 3 lakhs  
Dearness allowance – Rs 80,000  
Other Allowances and Perquisites – Rs. 2 lakhs

Employer's NPS Contribution - Rs 70,000

Tax payer's contribution - Rs 30,000

Tax Deduction under the New Regime:

Now, he can claim under section 80CCD(2), i.e. lower of the following-  
a. NPS contribution- Rs 70,000  
b. 14% of basic salary- Rs 42,000 
Rs. 42,000 can be claimed as a deduction under section 80CCD(2).

Tax Deduction under the Old Regime:

Now, he can claim under section 80CCD(2), i.e. lower of the following-  
a. NPS contribution- Rs 70,000  
b. 10% of basic salary- Rs 30,000 
Rs. 30,000 can be claimed as a deduction under section 80CCD(1)

Note:

If he is a government employee, 14% of basic pay, Rs 42,000 can be claimed as a deduction.

If he has deductions under section 80C, of Rs. 1,30,000 already, the total deductions - 80C plus 80CCD(1) comes to Rs.1,60,000, exceeding Rs. 1,50,000. At this point, the taxpayer can make use of section 80CCD(1B), and claim the excess Rs.10,000.