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Paying your income tax in an accurate and timely manner is crucial for the economic growth of the country. As a responsible citizen of India, you have to pay your taxes on time. The government has made several provisions in the Income Tax Act of 1961 that allow you deductions against investments in specific avenues. One such popular option is deductions under Section 80CCD.
Section 80CCD relates to the deductions available to individuals against contributions made to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY). Contributions made by the employers towards the NPS, also come under this section. NPS is a notified pension scheme from the Central Government.
The Central Government introduced NPS to provide the benefit of an organized pension scheme toIndian citizens. Initially, NPS was meant for government employees only but was later opened for the private sector as well as for the self-employed individuals. The basic motive behind NPS is to help individuals create a retirement corpus and receive a fixed monthly payout to help them lead a comfortable life post-retirement.
Here are some of the major highlights of the NPS:
Section 80CCD has been further divided into two subsections to provide clarity regarding the available deductions for income tax assesses.
While one subsection deals with the rules about tax deductions available to salaried and self-employed professionals, the other pertains to contributions made by the employer towards NPS.
Following is detailed information regarding the two sections for Section 80CCD.
Section 80CCD (1)
This subsection defines the rules related to income tax deduction available to individuals for contributions made to the NPS. It is irrespective of the fact whether the contribution has been made by a government employee, private employee or a self-employed individual. The provisions of this section apply to all Indian citizens who are contributing to the NPS and are between the age of 18 to 65 years. This also applies to NRIs. Following are the key provisions of Section 80CCD(1):
A new amendment to the Section 80CCD has been introduced in the Union budget of the year 2015 as sub-section(1B). Under these new provisions, individuals can claim an additional deduction of Rs. 50,000/-. This is available to both salaried as well as self-employed individuals.
This has thereby raised the maximum deduction available under Section 80CCD to Rs. 2,00,000/-. Tax benefits under Section 80CCD(1B) can be claimed over and above the deductions available under Section 80CCD(1).
Section 80CCD (2)
The provisions under Section 80 CCD (2) come into effect when an employer is contributing to the NPS of an employee. The contributions towards NPS can be made by an employer in addition to those made towards PPF and EPF. The contribution made by the employer can be equal to or higher than the contribution of the employee.
This section applies to only salaried individuals and not to self-employed individuals. The deductions under this Section can be availed over and above those of Section 80 CCD (1). Section 80CCD (2) allows salaried individuals to claim deductions up to 10% of their salary which includes the basic pay and dearness allowance or is equal to the contributions made by the employer towards the NPS.
Following are the various terms and conditions governing the deductions under Section 80CCD.
Section 80CCD(1B) specifically deals with contributions made by an individual (employee or self employed) to pension schemes as notified by the central government. This section provides additional deduction of Rs 50,000 over and above 80C limit of Rs 1.5 lakh. Which mean an individual can claim total deduction of Rs 2 lakh by making investments in 80C and contribution for national pension scheme u/s 80CCD(1B)
Employer’s contribution to NPS is allowed as deduction under section 80CCD(2) while computing total income of the employee. However, the amount of deduction cannot not exceed 14% of salary in case of central government employees and 10% in case of any other employee. There is no ceiling on the amount of deduction for employer’s contribution. And the deduction is available over and above the limit of Rs 1.5 lakh and Rs 50,000 under section 80CCD(1) and 80CCD(1B).