National Pension Scheme (NPS) was initially introduced by the Central Government on 1st January 2004 for the Government employees only. Later, in 2009, the scheme was made open for all the citizens of India.
Section 80CCD of the Income Tax Act provides deduction towards contribution to National Pension Scheme. The current article briefly covers deduction benefits under section 80CCD of the Income Tax Act along with illustration.
Deduction benefits under section 80CCD of the Income Tax Act –
Amount deposited to pension scheme is allowed as deduction under section 80CCD of the Income Tax Act. Let us individually understand the relevant sub-sections of section 80CCD for analysing deduction benefit available under section 80CCD –
Section 80CCD sub-section (1) –
Deduction available to – Government employees, non-government employees and self-employed persons.
Deduction limit –
| Particulars | Maximum deduction limit |
| Employees | 10% of the salary of the employee in the previous year [salary means basic + DA] |
| Self-employed | 20% of the gross total income in the previous year |
Notably, as per section 80CCE of the Income Tax Act, the total amount of deduction under section 80C; section 80CCC and Section 80CCD(1) should not exceed INR 1.50 Lakhs.
Section 80CCD sub-section (1B) –
Deduction available to – Government employees, non-government employees and self-employed persons.
Deduction limit – INR 50,000 towards contribution made to National Pension Scheme.
Notably, deduction of INR 50,000 is over and above the deduction provided under section 80CCD(1). However, deduction under section 80CCD(1B) will not be available for the amount already claimed and allowed as deduction under section 80CCD(1).
Additionally, the provisions of section 80CCE doesn’t apply to this deduction. In other words, deduction of INR 50,000 available under section 80CCD(1B) is over and above maximum deduction of INR 1.50 Lakhs. Hence, overall deduction under section 80C, section 80CCC, section 80CCD(1) along with section 80CCD(1B) will be INR 2 Lakhs [i.e. INR 1,50,000 + INR 50,000].
Section 80CCD sub-section (2) –
Deduction available to – Government employees and non-government employees. This deduction is not available to self-employed persons.
Deduction limit –
| Particulars | Maximum deduction limit |
| Central Government or State Government employer | 14% of the salary of the employee in the previous year [salary means basic + DA] |
| Other employer | Old tax regime – 10% of the salary of the employee in the previous year [salary means basic + DA]; or
New tax regime – 14% of the salary of the employee in the previous year [salary means basic + DA] |
Gist of tax saving benefits under section 80CCD –
Following table provides gist of tax saving benefits under section 80CCD of the Income Tax Act –
| Particulars | Section | Important relevant points |
| Deduction towards employees contribution towards NPS | Section 80CCD(1) | Maximum deduction –
Overall deduction u/s. 80C, 80CCC and 80CCD(1) cannot exceed INR 1.50 Lakhs |
| Additional deduction | Section 80CCD(1B) | Maximum deduction – INR 50,000 |
| Deduction towards employers contribution towards NPS | Section 80CCD(2) | Maximum deduction –
|
Illustration for better understanding of tax savings under section 80CCD –
Let us understand the tax savings benefit available under section 80CCD much better with the help of below illustration –
Mr. A is Government employee and his salary and investment details are summarized hereunder –
Basic Salary – INR 5,20,000/-
Dearness Allowance [DA] – INR 80,000/-
Additional allowances – INR 1,00,000/-
Investment that qualifies for under section 80C deduction – INR 1,00,000
Investment in National Pension Scheme [NPS] – INR 1,10,000
Deduction available to Mr. A under section 80C and 80CCD is summarized hereunder –
| Particulars | Deduction amount |
| Deduction under section 80C | INR 1,00,000 |
Deduction under section 80CCD(1) –
|
INR 50,000 |
Deduction under section 80CCD(1B) –
|
INR 50,000 |
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