NEW PENSION SCHEME- Section 80CCD of the Income Tax Act, 1961– (Deduction based on Investment)

The following conditions need to be satisfied for the applicability of Section 80CCD:

1- It is applicable to only Individual assessee.

2-It is applicable to Individual assessee employed with Central Government or employed by any other person other than Central Government. It is applicable to the self-employed individual assessee as well.

3- The deposit has to be made in the account maintained under the New Pension Scheme or Atal Pension Scheme.

If all the above conditions are satisfied then the individual assessee is entitled to deduction subject to limits as specified below:

In the case of Self-employed individual

In the case of employed individual (Govt. or other than Govt.)

Employee’s contribution

Employer’s contribution

20% of Gross Total Income

10% of salary*

10% of salary*

Section 80CCD(1)

Section 80CCD(1)

Section 80CCD(2)

* Salary includes basic salary and dearness allowance (if terms of employment so provide) and commission (as per the terms of employment) but excludes all other allowances and perquisites.

Section 80CCD(1B) – An additional deduction of up to Rs. 50,000/- for the contribution made by the individual assessee is also available under the New Pension Scheme. This deduction is in addition to deduction available to the individual assessee under section 80CCD(1) and 80CCD(2).

Section 80CCE: This section provides for the overall ceiling limit of Rs. 1,50,000/- in respect of deductions available under sections 80C, 80CCC and 80CCD(1).

This implies that the deduction under section 80CCD(2) (in respect of employer’s contribution i.e. up to 10% of salary) and the additional deduction as available under section 80CCD(1B) (of up to Rs. 50,000/-) are outside the scope of Section 80CCE i.e the overall ceiling limit of Rs. 1,50,000/- does not apply to deductions available under section 80CCD(2) and 80CCD(1B).

Put simply, deduction under 80CCD(1B) can be claimed up to Rs. 50,000 for employee’s contribution over and above the deduction of 10% of salary under section 80CCD(1). Also note that deduction under 80CCD(1) is counted in overall limit of 1,50,000 along with sections 80C, 80CCC. The good part, the employer’s contribution up to 10% of salary does not fall in the 1,50,000 restriction, as described above.

Example: Mr A is employed with his basic income being Rs. 15,50,000/- per annum and dearness allowances of Rs. 50,000/- per annum. His company contributes 10% of his salary in NPS. He contributes Rs. 1,05,000 towards his NPS. Apart from contribution in NPS he deposits Rs. 1,00,000/- in PPF and Rs. 5,000/- towards LIC premium.

Description Amount (in Rs.) Amount (in Rs.)
Basic Salary

15,50,000

Dearness Allowances

   50,000

Gross Total Income (A)

16,00,000

Less: Deductions available other than the overall limit of Rs. 1,50,000/- under section 80CCE  
Under section 80CCD(1B) (additional deduction up to Rs. 50,000/-)

50,000

Under Section 80CCD(2) (employer’s contribution up to 10% of Salary)

1,60,000

Total (B)

2,10,000

2,10,000

Less: Deductions available within the overall limit of Rs. 1,50,000/- under section 80CCE  
Section 80CCD(1) [total employee’s contribution – allowed under section 80CCD(1B)]

55,000

Section 80C

  • PPF
  • LIC


1,00,000
5,000

Total (C) (Limited to 1,50,000 only)

1,60,000

1,50,000

Net Income (A-B-C)

12,40,000

Tax on withdrawals:

Description

Self-employed

Employee

1. Pension received out of NPS upon retirement

Taxable

Taxable

2. Amount received on closure or opting out of NPS

40% exempt

40% exempt

3. Partial withdrawal

Taxable in the year of receipt

Exempt to the extent of 25% of the employee’s contribution

4. The amount received by the nominee on the death of the assessee

Exempt

Exempt

5. The amount received is utilised in purchasing an annuity plan So much of the amount is Exempt as is utilised. So much of the amount is Exempt as is utilised.
6. Pension received from the Annuity plan as purchased in (5)

Taxable

Taxable

Scheme information: Contribution towards the New Pension Scheme is invested in three Pension Fund Managers (PFMs) namely, LIC Pension Fund Limited, SBI Pension Funds Pvt. Limited and UTI Retirement Solutions Limited. These pension fund managers invest the funds so collected by way of contribution in the proportion of 85% in fixed income securities and 15% in equity and equity-linked mutual funds.

Disclaimer: All Readers are advised to refer relevant provision of law before applying or accepting any of the point mentioned above. The author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the contents of this write-up.

(Author Nishant Agrawal, ACA is associated with Ashok O P Agrawal & Co., Delhi and can be reached at nishant@aopa.co.in)

Author Bio

Qualification: CA in Job / Business
Company: Ashok O P Agrawal & Co.
Location: New Delhi, New Delhi, IN
Member Since: 20 Mar 2019 | Total Posts: 2

My Published Posts

More Under Income Tax

3 Comments

  1. SHRI says:

    Dear Sir,
    The clarification is not clear, as per the new norms of Government of India, the NPS Contribution of Employer is 14% on Basic + DA so which amount should we claim deduction under 80CCD(2) please clarify

    1. NISHANTAGRAWAL says:

      Dear Sir

      I found the notification dated 31st January 2019. The link is as follows:
      https://www.npscra.nsdl.co.in/download/ministry/Gazette-notification-Revision-in-NPS-Government-sector.pdf

      The rate of the Employer’s contribution is 14% of Basic Salary and DA. The same has come into force with effect from 01st April 2019. Another important point to be noted is that the rate of 14% is applicable to Central Government employees as given in the notification.

      Though the NPS Website is not updated. The link: https://www.npscra.nsdl.co.in/tax-benefits-under-nps-cg.php

      Thank you so much, Sir, for bringing into light a very important change and updating.

Leave a Comment

Your email address will not be published. Required fields are marked *