Deduction under Section 80CCD for National Pension Scheme Contribution is one of the most popular deduction. Many users take advantages of this deduction at the time of filing of their Income tax Return. Hence today I am writing this article to discuss this most popular section in detail. So, let’s start the discussion.
This deduction basically availed by the individuals being as a salaried employee or as self employed against the contribution made towards Pension Funds notified by Central Government such as National Pension Scheme (NPS).
Now, for our better understanding we will divide this section in 3 parts, which are as under:
This provision is applicable to all the employees i.e Government as well as Non- Government and to those people who are self- employed. In this section there is no specification for resident that means this is applicable for the Non Resident Individuals as well.
The deduction u/s 80CCD(1) quantified as follows:
Note: For the purposes of this section, “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites
This sub section is introduced by Finance Act, 2015. As per this sub-section the assessee i.e Salaried employee or Self-Employed person both can claim additional Rs 50,000/- as deduction which is over and above Rs. 150000 as available u/s 80C, 80CCC and 80CCD(1). This is also for the contribution made towards notified pension scheme.
This section comes into play when the Central Government or any other employer makes any contribution to the account of an assessee referred in Section 80CCD(1). Now, how this deduction will work in Income Tax Return is little different as compared to other deductions.
To claim deduction u/s 80CCD(2), follow 2 steps:
i) First add that contribution in salary income
ii) and then claim deduction under Chapter VI-A, upto maximum of 10% of salary (Remember in case of Government employees it is 14%)
Here, we complete discussing the important part of Section 80CCD.
Now, heading towards the most crucial factor. As per Finance Act, 2020, Government introduced New Tax regime for Individuals i.e u/s 115BAC which have some concessional rate of taxation. But for taking the benefits of these concessional rates, the assessee has to forego the most of the deductions and exemptions available under the current regime.
Coming directly toward our concern point of today’s topic, if person opt for New Tax Regime he has to forgone the deductions u/c VI-A like 80C, 80D, 80E, 80G except 80CCD(2) and 80JJAA. This means they can claim deduction u/s 80CCD(2) irrespective of the fact that whether they are choosing old tax regime or new tax regime. Hence, this thing we all need to keep in mind at the time of filing of Income Tax return henceforth.
I hope this article is very fruitful for all of you.
(Republished with Amendments by Team Taxguru)