Deduction under section 80CCD of Income Tax Act

The present article highlights provisions of section 80CCD of the Income Tax Act, which provides a deduction of the amount paid or deposited towards the notified pension scheme.

Deduction under section 80CCD is divided into three parts which are defined as under –

1. Section 80CCD (1) – Employee’s contribution to the notified pension scheme

2. Section 80CCD (2) – Employer’s contribution to the notified pension scheme

3. Section 80CCD (3) – Relates to receipt of amount on which deduction is claimed under section 80CCD (1) or section 80CCD (1B) or section 80CCD (2) or amount accrued thereon.

Understanding section 80CCD (1) –

Section 80CCD (1) covers an ‘individual employee’ who has paid / deposited any amount towards the notified pension scheme [like National Pension Scheme (NPS)].

It is worthwhile to note here that the ‘individual employee’ mentioned above covers all the types of individual employees like private employees; government employees and also self-employed employees.

Maximum allowable deduction –

The entire amount paid / deposited by the ‘individual employee’ is allowed as a deduction under section 80CCD (1), however, the amount of deduction cannot exceed the following limit –

• 10% of the salary, in case of an employee; and
• 20% of the gross total income in any other case.

Additional maximum deduction condition –

Other than the above defined maximum allowable deduction condition, the individual needs to also check that as per provisions of section 80CCE, the maximum allowable deduction under section 80C, section 80CCC and section 80CCD (1) cannot exceed INR 1.50 Lakhs.

Understanding section 80CCD (2) –

When either the Central Government employer or any other employer contributes towards the notified pensions scheme (like National Pension Scheme) of an employee, such contribution made by the employer is allowed as a deduction to the employee.

Maximum allowable deduction –

The entire amount paid / deposited by the employer is allowed as a deduction under section 80 CCD (2), however, the amount of deduction cannot exceed 10% of the salary.

Understanding section 80CCD (3) –

In case the amount standing to the credit of the individual’s pension scheme account (which includes both the amount on which deduction has been allowed + amount accrued thereon) has been received by either the individual assessee or the nominee of the assessee in the following manner –

• The amount has been received on account of the closure of the account or on account of opting out of the pension scheme; or
• The amount has been received as a periodic pension.

When such amount is received by the individual assessee / nominee of the assessee, the same shall be deemed to be the income of the individual assessee / nominee of the assessee and shall be chargeable to tax in the previous year in which the amount is received.

Additional deduction of INR 50,000 available as per provision of section 80CCD (1B) –

Maximum additional deduction of INR 50,000 is allowed to all the individual employee (whether private employees, government employees or self-employed employees) towards amount paid or deposited under any notified pension scheme.

Frequently Asked Question (FAQ) –

1. What is a deduction under section 80CCD?

Section 80CCD covers deduction towards the amount paid / deposited by way of employer’s contribution as well as employee’s contribution to the notified pension scheme like National Pension Scheme.

2. What is the maximum limit under section 80CCD?

• • As per section 80CCD(1) the maximum limit is 10% of the salary, in case of an employee and 20% of the gross total income, in any other case. However, the maximum limit of deduction under section 80C, 80CCC and 80CCD (1) cannot exceed INR 1.50 Lakhs.
  • Further, as per section 80CCD (2) the maximum limit is 10% of the salary.
  • Additionally, maximum limit of INR 50,000 is allowed as per section 80CCD (1B).

3. What is section 80ccd 1b?

Section 80CCD (1B) allows additional deduction of INR 50,000 on the amount paid / deposited to the notified pension scheme.

4. How do I claim deduction under section 80ccd 1b?

Deduction under section 80CCD (1B) of the Income Tax Act can be claimed by paying / deposited an amount to the notified pension scheme. The maximum allowable deduction is limited to INR 50,000.

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