Section 80CCD Deductions | NPS | APY | Section 80CCD (1) (1b) & (2) (2023)

What is meant by Section 80CCD Pension Contributions?

Section 80CCD of the Income Tax Act, 1961 allows individuals to claim tax deductions on contributions made towards certain pension plans. These deductions can help reduce your taxable income, effectively lowering the amount of tax you need to pay.

Section 80CCD can be divided into further subsections-

• Section 80CCD(1)

  • Section 80CCD(1B)

• Section 80CCD (2)

Features of 80CCD Section (1)

Section 80 CCD(1) lays down the rules and regulations relating to the authorization of persons to make contributions to NPS which are deductible from income tax. Following are the main features of 80CCD (1):

• It does not matter if these increases are made by the public, private or self-employed. The directives and regulations of this section apply to all citizens of India who contribute to the NPS.

• Indian citizens should be between 18 and 65 years of age. This also applies to NRIs.

• The maximum deduction allowed under this section is 10% of the salary (base + DA) or 10% of the gross income of the person.

• From FY 2017 to FY 2018, this limit has been increased to 20% of the gross income of self-employed persons subject to a maximum of Rs. 1,50,000 for the particular financial year.

• The tax deduction limit for employers' contributions to state employees' NPS accounts has been increased to 14%. It has been at the level of government employees.

Additional deduction for Self-employed Individuals under Section 80CCD(1B)

Self-employed individuals, including professionals and business owners, are eligible for the deduction under Section 80CCD(1B). For the corresponding financial year, the individual must have contributed to the National Pension System (NPS) or the Atal Pension Yojana (APY).

The highest deduction available to taxpayers under Section 80CCD(1B) is Rs. 50,000. This sum is in addition to the Rs. 1.5 lakh maximum limit permitted under Sections 80C, 80CCC, and 80CCD(1). To claim this deduction, the taxpayer must get a certificate from the pension fund administrator, which must be submitted with the return to the authorities.

Features of Section 80CCD (2)

• This refers to the tax benefits employers receive for their contributions to pension schemes. If your employer contributes to NPS account, he will get tax deduction under Section 80(2) CCD. Apart from contributing to PPF and EPF, employers can also contribute to NPS.

• This tax relief is limited to 20% of the employer's gross income of the previous year. Employer contributions may be equal to or greater than employee contributions.

• As per sub-section 2 of section 80CCD, deduction is allowed only to white collar workers and not to self-employed persons. Section 80 CCD(2) allows employees to claim a deduction of up to 10% of their wages. This includes basic salary and salary supplements. Otherwise, it is equal to the employer's contribution to NPS.

• Section 80CCD (1) and 80CCD (2) were introduced in 2004 after the introduction of NPS.

How much tax is exempted from 80CCD?

Eligible Pension Plans Under Section 80CCD

Here’s a list of the pension plans. Note that the details are subject to changes based on policy modifications.

1. National Pension System (NPS)

The National Pension System (NPS) is a government-sponsored pension plan that allows people to save for retirement. Contributions to the NPS are tax-deductible under Section 80CCD(1) of the Income Tax Act. The maximum deduction under this clause is Rs. 6,000 for Tier I accounts and Rs. 2,000 for Tier II accounts every year.

2. Atal Pension Yojana (APY)

The Atal Pension Yojana (APY) is a government-backed pension system for unorganised sector workers. Contributions to the APY are tax deductible under Section 80CCD(1B) of the Income Tax Act and are open to all Indian nationals between 18 and 40 years of age. The maximum deduction that individuals can claim under this clause is Rs. 1.5 lakhs under section 80CCD(1) and Rs. 50,000 under section 80CCD(1b) each fiscal year.

3. Employees' Pension Scheme (EPS)

EPS is a pension scheme for salaried employees, and contributions made to an EPS account are eligible for deductions under Section 80CCD(2), subject to a maximum of 10% of your basic salary.

Things to keep in mind while making section 80CCD Pension Contributions

Here is a list of things to keep in mind when making section 80CCD Pension Contributions.

1. It's important to choose a pension plan that aligns with your retirement goals and risk appetite.

2. Section 80CCD allows deductions for contributions to the National Pension System (NPS) or the Atal Pension Yojana (APY).

3. Contributions and deductions under this provision are only available to self-employed individuals, including professionals and business owners

4. The additional deduction under Section 80CCD(1B) has a maximum amount of Rs. 50,000.

5. You can make NPS/APY contributions at any time during the fiscal year. However, you should make the contributions early in the year to optimise tax benefits

6. When completing your taxes, you must include the contribution to NPS/APY in the income tax return form. Also, get a certificate from the pension fund administrator, and submit it with your tax return.

7. Keep all relevant documents, such as contribution proof and policy documents, safe for future reference.

Frequently asked questions

Disclaimer: The content on this page is generic and shared only for informational and explanatory purposes. It is based on several secondary sources on the internet, and is subject to changes.