Increase in amount allowed as deduction to non-government employers and their employees for employer contribution to a Pension Scheme referred in section 80CCD
Section 36 of the Act pertains to other deductions allowed while computing the income under the head ‘Profits and gains of business or profession’. Clause (iva) of sub-section (1) of said section states that any sum paid by the assessee as an employer by way of contribution towards a pension scheme, as referred to in section 80CCD of the Act, on account of an employee, to the extent it does not exceed ten per cent of the salary of the employee in the previous year, shall be allowed as a deduction to the employer.
2. It is proposed to amend clause (iva) of sub-section (1) of section 36 of the Act, to increase the amount of employer contribution allowed as deduction to the employer, from the extent of 10% to the extent of 14% of the salary of the employee in the previous year.
3. Section 80CCD deals with deduction in respect of contribution to pension scheme of Central Government. Sub-section (2) of section 80CCD states that any contribution by the Central Government or State Government or any other employer to the account of an employee referred to in sub-section (1), shall be allowed as a deduction as does not exceed ––
(a) 14% (where such contribution is made by the Central Government or State Government); and
(b) 10% (where such contribution is made by any other employer) of the employees’ salary in previous year.
4. It is proposed to amend sub-section (2) of section 80CCD of the Act, to provide that where such contribution has been made by any other employer (not being Central Government or State Government), the employee shall be allowed as a deduction an amount not exceeding 14% of the employee’s salary. This is being increased only in the case where the employee’s salary is chargeable to tax under sub-section (1A) of section 115BAC of the Act.
5. The amendments will take from the 1st day of April, 2025 and will accordingly apply from assessment year 2025-2026 onwards.
[Clauses 12 & 25]
Amendment of section 36 of Income Tax Act, 1961 by Finance Bill, 2024.
In section 36 of the Income-tax Act, in sub-section (1), in clause (iva), for the words “ten per cent.”, the words
“fourteen per cent.” shall be substituted with effect from the 1st day of April, 2025.
Amendment of section 80CCD of Income Tax Act, 1961 by Finance Bill, 2024.
In section 80CCD of the Income-tax Act, in sub-section (2), the following proviso shall be inserted with effect from the 1st day of April, 2025, namely:––
‘Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, the provisions of sub-section (2) shall have effect as if for the words “ten per cent.” referred to in clause (b), the words “fourteen per cent.” had been substituted.’.
Extract of Clause 12 of Finance Bill 2024
Clause 12 of the Bill seeks to amend section 36 of the Income-tax Act relating to other deductions.
Sub-section (1) of said section provides for various deductions allowed while computing the income under the head ‘Profits and gains of business or profession’. Clause (iva) of the said sub-section provides that any sum paid by the assessee as an employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee to the extent it does not exceed ten per cent. of the salary of the employee in the previous year, shall be allowed as a deduction to the assessee.
It is proposed to amend the said clause so as to increase the amount of such employer contribution allowed as deduction to the employer, from ten per cent. to fourteen per cent. of the salary of the employee in the previous year.
This amendment will take effect from 1st April, 2025 and will, accordingly, apply in relation to the assessment year 2025-2026 and subsequent years.
Extract of Clause 25 of Finance Bill 2024
Clause 25 of the Bill seeks to amend section 80CCD of the Income-tax Act relating to deduction in respect of contribution to pension scheme of Central Government.
Sub-section (2) of the said section provides that any contribution by the Central Government or the State Government or any other employer to the account of an assessee referred to in sub-section (1), shall be allowed as a deduction to the assessee in the computation of their total income, if it does not exceed fourteen per cent. of their salary in previous year, where such contribution is made by the Central Government or the State Government and ten per cent. of salary in previous year where such contribution is made by any other employer.
It is proposed to insert a proviso to sub-section (2) in the said section, to provide that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, the assessee shall be allowed as a deduction of the whole of the amount of the employer contribution as does not exceed fourteen per cent. of his salary in previous year.
These amendments will take effect from 1st April, 2025 and will, accordingly, apply in relation to the assessment year 2025-2026 and subsequent years.
