The Section 80CCD provides tax deductions to income tax assessees who have made contributions to the National Pension Scheme (NPS) as well as on contributions made by an employer for the same reason. There are two parts of this section namely:
Section 80CCD (1): This section deals with providing tax deductions to all assessees whether employed by the government, any other employers or self-employed individuals. The deduction is limited to a maximum of 10% of salary (basic + dearness allowance only) in case of salaried employees and 10% of gross income in case of self-employed taxpayers. The deduction limit cannot exceed Rs.1 lakh in a fiscal year.
Section 80CCD (2): This section deals with the employer contribution toward an employee’s NPS funds. Employees can claim this amount as deductions u/s Section 80CCD (2). The amount of deduction is limited to 10% of the employee’s salary.
Terms for Claiming Section 80CCD Deductions:
- Deductions are applicable on contributions made to the National Pension Scheme (NPS) by salaried and self-employed individuals as well as their employers.
- 10% of salary (basic + dearness allowance) or 10% of gross income (self-employed) can be claimed as maximum deduction subject to an upper ceiling of Rs.1.5 lakhs.
- From FY 2016-17, additional deduction of up to Rs.50,000 is available for contributions by individuals towards NPS under sub-section 1B, taking the total deductions to Rs.2 lakhs per year.
- Any deductions claimed u/s 80CCD cannot be claimed again u/s 80C.
- Total deduction limit – Section 80C + Section 80CCD = Rs.2 lakhs.
- The proceeds from the pension fund whenever released such as for monthly pension payment or surrendered accounts will be taxable under respective income tax brackets.
- If the funds released from NPS are reinvested in an annuity plan, no income tax has to be paid on the redeemed amount.
- Deductions u/s 80CCD (1) are limited to Rs.1 lakh per year, while the deductions u/s 80CCD (2) can be claimed over and above this limit, subject to a maximum deduction of Rs.1.5 lakhs.
Eligibility for Claiming Section 80CCD Deductions:
Individual taxpayers, both salaried and self-employed can claim deductions under this section. Deductions can also be claimed on employer contributions towards NPS. HUFs are ineligible for deductions under this section.
Points to Note:
- Can be claimed by individual assessees only.
- The additional deduction of Rs.50,000 was proposed in Budget 2015 and will come in effect from 1st April 2016.
- Deduction under 80CCD (1) is capped at Rs.1 lakh while the remaining amount can be claimed for contributions under 80CCD (2).
Claiming 80CCD Tax Deductions:
You can claim deductions for contributions made under this section at the end of the year. The contributions made by you as well as your employer need to be filled in the IT return form to claim deductions.
Sections 80CCD, 80CCC and 80C:
The benefits of Section CCD fall under those of 80C, i.e. the deductions claimed u/s 80CCD cannot be claimed again in 80C. The overall limit of deductions under 80C, 80CCC and 80CCD is Rs.1.5 lakhs, with an additional deduction of Rs.50,000 allowed u/s 80CCD sub section 1B.
Frequently Asked Questions:
- What is the minimum contribution I can make to the NPS and still claim deductions? You need to make a minimum contribution of Rs.6,000 yearly and Rs.500 as minimum single contribution under Tier-1. Tier-2 contributions should be at least Rs.2,000 in a year with a single contribution being Rs.250 or more.
- Who can invest in NPS? Any individual taxpayer within the age of 18-60 years can contribute voluntarily to the National Pension Scheme.
- Which mode of premium payments can be claimed as deductions? Both cash and cheques are accepted for contributions toward NPS funds and can be claimed as deductions.