Section 80CCD – National Pension Scheme

Section 80CCD – National Pension Scheme

There are 770 lakhs registered individual taxpayers as per CBDT (Central Board of Direct Taxes). Individual Taxpayers always in worries about the burden of Direct Taxes. There are numerous provisions under the income tax act 1961 which provide the Tax relief to the different type of assessee whether by way of Exemptions or deductions from total income. Popularly known section for deduction is sec 80C of income tax, it provides the deduction of Rs.1, 50,000 to Individual or HUF. There are some other sections which provide the deduction to individual or HUF Assessee out of that Section 80CCD – National Pension Scheme is one of them.

Sec 80CCD of income tax act 1961 provides the deduction on contribution to Pension Fund set up by Central Government. An individual person can get the deduction up to 2, 00,000 under this particular section. The provisions of this particular section are as follows:-

There are two type of Individual taxpayers covered under this section

Employees – Persons employed in any organization

Self Employed – Engaged in Business and profession

The extent of deductions Allowed to above category of taxpayers:-

Section 80CCD

1) Deductions under Section 80CCD allowed employees

An amount under the pension fund scheme can be contributed by both employers and employee himself. If Employer contributes any amount in pension scheme on behalf of such employee then such amount shall form part of salary and then allowed to be deducted.

For the amount contributed by employer respective employee can get the deduction under section 80CCD (2) and for the amount deposited by the employees himself deduction could be availed under section 80CCD (1)

However, a deduction under section 80CCD cannot exceed 10% of salary and salary for the purpose of sec 80CCD includes Basic salary + Dearness allowance (If terms of employment provide for inclusion in benefits)

National Pension Scheme

Note: – As per section 80CCE aggregate deduction under section 80C+80CCC+80CCD (1) cannot exceed Rs.1, 50,000

But the amount of deduction under section 80CCD (2) do not fall in the ceiling of section 80CCE

2) Deductions under Section 80CCD allowed to Self Employed individuals

If self-Individual contributes any amount towards the pension scheme of central government (National pension scheme) then such an individual could avail the deduction up to 20% of gross total income.

This is subject to overall ceiling of Rs.1, 50,000 under section 80CCE

Note: – As per finance act 2015 assessee can avail an additional deduction of Rs.50,000 on the amount contributed by it. It means in both the cases an assessee can avail the total deduction of Rs.2, 00,000 under section 80 CCCD.

Conditions attached to deductions under section 80CCD:-

A deduction shall be allowed on actual payment basis

No deduction under section 80C if allowed under this section

Any amount is withdrawn or pension received is taxable in hands of an assessee, However, as per sec 10(12A) any amount received on account of closure of pension Account or Opting out of Pension scheme is not taxable if the amount doesn’t exceed 40% of amount entitled

If any partial Withdrawal from NPS to the extent of 25% of the amount contributed is not taxable as per section 10(12B)
The assessee shall be deemed to not receive any amount in the previous year if such amount used to purchase annuity plan in the same previous year

Any amount received by the nominee on death of employee not taxable

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