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Section 80CCD of the Income Tax Act, 1961 refers to income tax deductions allowed to individual tax assessee on the contribution made towards notified pension schemes from central government i.e. New Pension Scheme (NPS) and Atal Pension Yojana (APY). NPS is a notified pension scheme offered by the Central Government. Employer’s contribution on the behalf of employee towards National Pension Scheme is also included in the same section as per the rules of Income Tax Act.
The following are the eligibility criteria for claiming deductions under Section 80CCD of Income Tax Act, 1961:
Section 80CCD has been further divided into two sub-sections to provide clarity regarding the available deductions for income tax assesses. While one sub-section deals with the rules about tax deductions available to salaried and self-employed professionals, the other pertains to contributions made by the employer towards the NPS.
Following is detailed information regarding the two sections for Section 80 CCD.
This sub-section 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 ages 18 to 60 years. This also applies to NRIs.
The deduction is restricted to a maximum of 10% of salary for salaried employees and 10% of gross income for self-employed taxpayers, i.e. taxpayers who are not salaried employees. Here, salary refers to the total of basic pay and dearness allowance. However, this was applicable only for the FY 2016-17 because the limit has been increased to 20% from the next financial year, i.e. FY 2017-18 onwards. The deduction amount cannot be more than INR 1.5 lakh in a particular fiscal year.
Part (1B) under Section 80CCD has been introduced through amendments made to the 2015 Union Budget. It offers an additional deduction of INR 50,000 for assesses, both salaried and self-employed, who have contributed to NPS. After including 80CCD (1B), the maximum deduction limit is restricted to no more than INR 2 lakh. Tax benefits under this sub-section can be claimed over and above deductions the limit of Section 80CCD (1).
This sub-section of Section 80CCD of Income Tax Act, 1961 is applicable when an employer contributes towards an NPS fund on behalf of its employees. An employer can contribute towards an employee’s NPS, along with contributions towards PPF and EPF. The contribution of the employer can be equal or higher or lower than the employee’s contribution towards NPS. Deductions under this section can be availed only by salaried employees and not self-employed. The employed are eligible for deductions over and above the limit as per Section 80CCD (1).
In this case, employees can claim deductions under Section 80CCD (2) up to 10% of their salary, i.e. basic salary and dearness allowance taken together, or equivalent to the gross total income or equivalent to the contribution made towards NPS by the employer.
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