Summary: Under the new income tax regime introduced by Section 115BAC of the Income Tax Act, 1961, most deductions are disallowed. However, one notable exception is Section 80CCD(2), which allows a deduction for employer contributions to the National Pension Scheme (NPS). This benefit applies only to employees who meet the criteria set out in Section 80CCD(1), meaning the employee must have made a personal contribution to the NPS during the financial year. Under Section 80CCD(2), if the employer is the Central or State Government, the deductible contribution can be up to 14% of the employee’s salary (comprising basic pay and dearness allowance). For employees working under any other employer, the deductible limit is 10% of the salary. Importantly, in the context of the 115BAC regime, only the employer’s contribution is eligible for deduction—any personal contributions by the employee to the NPS are not deductible. For instance, if a central government employee and their employer each contribute 14% of the salary to the NPS, only the employer’s share qualifies for deduction under the new regime. This clarification is crucial for salaried individuals preparing to file their tax returns under the 115BAC regime, as it helps in accurate tax planning and understanding of allowable deductions.
Since deadlines to submit salaried returns are now approaching, we will talk about Section 115BAC of the Income Tax Act, 1961. I’ve observed that some deductions are allowed under the new regime. For today, I just want to focus on one, i.e., sub-section (2) of Section 80CCD, which says:
“Where, in the case of an assessee referred to in sub-section (1), the Central Government [or the State Government]or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government [or the State Government]or any other employer as does not exceed—
(a) fourteen per cent, where such contribution is made by the Central Government [or the State Government];
(b) ten per cent, where such contribution is made by any other employer, of his salary in the previous year.”
Before further interpretation, we need to look into subsection 1 of section 80CCD since, Deduction under section 80CCD(2) is available only in case of assessee referred under subsection 1, which says:
“(1) Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or, being an individual employed by any other employer, or any other assessee, being an individual has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,—
(a) in the case of an employee, ten per cent of his salary in the previous year; and
(b) in any other case, twenty per cent of his gross total income in the previous year.”
Let me give you an example – Let’s say Mr.X is working for central government and during Previous year CG made contribution to NPS equal to 14% of Salary and same contribution is made by Mr.X and he opted for new regime i.e. 115BAC, then only deduction available to him under 80CCD(2) I.e. just for CG’s contribution and not his contribution amount.
Simplified Explanation:
Let me interpret this for you in simple words, new regime provides exemption for contribution made by employer and not for employee’s contribution but limits it to 14% of salary (Basic + Dearness Allowance) in case of CG/SG employee and 10% of salary in any other cases. This exemption can be claimed by employees who meet the criteria mentioned in Subsection 1 of Section 80CCD, which includes employees who make their own contributions to NPS in the same proportion of their salary—10% or 14%, depending on whether they work for the Central/State Government or a private employer.
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