Section 80CCD of Income Tax Act
An individual can claim deduction on his or her contribution towards National pension scheme (NPS) or Atal Pension Yojna (APY) under section 80CCD of the income tax act, 1961. It also covers employer contribution on behalf of their employeestowards NPS. National pension scheme is a scheme designed by central government to help individuals by giving them retirement benefit for the contribution they made towards the scheme, so that they can leada happy and comfortable life after the retirement.
Eligibility for claiming deduction under section 80CCD
Following persons are eligible for claiming deduction under section 80CCD –
- Both individual and self-employed assesses are eligible for claiming tax deduction under section 80CCD.
- NRI’s are also eligible to claim tax benefits under section 80CCD
- HUF’s are not eligible for claiming tax benefits under this section
- An individual can claim maximum deduction up to Rs.1.5 Lakh under section 80CCD(1). However, introduction of additional deduction up to Rs.50000 was later introduced in the Union Budget of 2015 that you can claim under section 80CCD (1B). Hence, Maximum deduction limit that an individual can claim is Rs.2 Lakhs.
- As per Section 80CCD, an individual can contribute up to 10% of the annual salary (Inclusive of basic & dearness allowance). This scheme is applicable on income tax payers employed on or after 1st January, 2004.
- Not even salaried employees of the central government but self-employed persons are also eligible for claiming deduction on their gross income. It is also applicable on the employees working in private sectors. From FY 2017-18, the deduction limit has also been increased from 10% to 20%.
National Pension Scheme under Section 80CCD
National pension scheme is a scheme offered to Indian citizens in order to provide thembenefit after retirement. In the beginning, it was applicable on central government employees but later onthis scheme opens for self-employed persons and private sector employees too. The main purpose of National pension scheme is to create retirement fund for accesses which is used for providing them fixed monthly pay out after their retirement.
Highlights of National Pension Scheme
- It is one of the cheapest investment options available in the market to get retirement benefit.
- It is necessary for an individual to make contribution towards NPC till 60 years of age.
- It is a mandatory scheme for central government employees whereas for other individuals, it is voluntary.
- In order to get eligible for availing deduction under NPS Tier 1 account, it is necessary for an individual to make minimum contribution of Rs.6000 per annum or Rs.500 per month.
- In order to get eligible for availing deduction under NPS Tier 2 account, it is necessary for an individual to make minimum contribution of Rs.2000 per annum or Rs.250 per month.
- Number of investment options to choose from – Equity funds, government securities, government bonds etc.
- An individual can allowed up to 25% of partial withdrawals from the contribution subject to certain specified conditions.
- Individuals are allowed to withdraw up to 60% of the contributed amount as lump sum pay out but he/she should invest the rest of the 40% amount in an annuity plan.
Categories of 80CCD
Under section 80CCD, contributions are made to 2 government pension schemes which are as follows –
- Section 80CCD(1) – This section deals with contributions made by central government employees/employer/self-employed/others. A salaried employee can contribute maximum 10% of salary whereas self-employed person can contribute maximum 10% of Gross income.
Section 80CCD(2) – This section deals with contribution made by employer towards employee’s NPC account on his or her behalf. The maximum amount of contribution an employer can make towards employees NPC account is 10% of employee’s salary.
- Section 80CCD(1B) – This section deals with additional tax benefit of Rs.50000 which takes maximum total deduction limit to Rs.2 Lakhs.
Terms & conditions for claiming deductions under section 80CCD
- Central government employees, private employees and self-employed persons must make contribution towards National pension scheme in order to claim deduction under section 80CCD.
- An individual can contribute maximum 10% of salary (basic plus dearness allowance) or 10% of gross business income (Self-employed) and can claim maximum deduction of Rs.1.5 Lakh under section 80CCD.
- An individual is also entitled to claim additional deduction up to Rs.50000 under section 80CCD(IB) taking the total deduction limit to Rs.2 Lakhs per year.
- If an individual has already claimed tax benefits under section 80CCD, he or she cannot claim it again under section 80C.
- The combined deduction limit under section 80C and 80CCD cannot exceed Rs.2 Lakhs.
- Monthly pay outs received by an individual from NPS are liable for taxation as per provisions specified under Income tax act. Surrendered accounts are also liable for taxation.
- Any amount received by an individual from NPS, if reinvested in an annuity plan; it will be exempted from taxation.
- An individual can claim deduction under section 80CCD at the time of filing income tax return at the end of financial year. It is necessary for you to show payment proof in order to get eligible for this deduction.
Claiming 80CCD Tax Deduction
An individual can claim tax deduction on the contributions made to national pension scheme at the end of the financial year. Salaried employees & self-employed persons can claim tax deduction for NPS contribution at the time of filing income tax returns. Proof of payment is a necessary requirement for claiming deduction under section 80CCD.
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