3/11/2014 Section 80CCD(1) & 80CCD(2): Deduction for Contribution to NPS

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These Deductions are available under Section 80C, Section 80CCC & Section 80CCD and can be claimed atthe time of filing of the income tax return. This article mainly focuses on Deductions allowed under Section

80CCD. For deductions under Section 80C & Section 80CCC, refer the following links:-

Section 80CCC: Deduction for Contribution for Pension Plan of Insurance Company

Section 80C: Deduction for Contribution Pension Plan of UTI/Mutual Fund

Deduction under Section 80CCD

Section 80CCD provides for Income Tax deductions for contributions made to the notified Insurance

Scheme of the Central Govt i.e. for contribution to the National Pension Scheme (NPS). Deduction under this

Section is only available to Individuals and not to HUF’s. The Individual claiming deduction under this Section

may be Resident or Non-Resident.

Section 80CCD(1): Deduction to NPS Scheme for Contribution by the Individual

Deduction under Section 80CCD(1) is not only available to Salaried Individuals but non-salaried individuals can

also contribute to the NPS Scheme and avail deduction for the same.

The maximum amount allowed as a deduction under Section 80CCD(1) is:-

In case of an employees: 10% of his salary for the financial year (Salary includes Dearness Allowance butexcludes all other Allowances and Perquisites)In case of non-employees: 10% of the Gross Total Income in the Financial Year

As per Section 80CCE, the total maximum deduction allowed under Section 80C, Section 80CCC & Section80CCD(1) is limit to Rs. 1 Lakh. This is a combined aggregate deduction of Rs. 1 Lakh and no separatededuction has been prescribed for each of these sections. The Individual can choose to invest under any of these

sections subject to an aggregate total deduction limit of Rs. 1 Lakh.

Section 80CCD(2): Deduction to NPS Scheme for Contribution by the Employer

3/11/2014 Section 80CCD(1) & 80CCD(2): Deduction for Contribution to NPS

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In case any employer contributes to the NPS Scheme on behalf of the employee and the benefit of the same

would be availed by the employee, the employee would also be allowed a deduction under Section 80CCD(2)for the amount of contribution made by the employer.

The contribution made by the employee himself to the NPS Scheme would be allowed as a deduction under

section 80CCD(1) and the contribution made by the employer to the NPS Scheme would be allowed as adeduction under Section 80CCD(2).

There is a maximum limit for deduction for contribution made by the Individual himself under Section 80CCD(1)

as mentioned above. But for contribution made by the employer to the NPS Scheme for benefit of employee,there is no maximum limit for deduction allowed under Section 80CCD(2). The Deduction under Section

80CCD(2) is over and above the deduction of Rs. 1 Lakh under Section 80C + Section 80CCC + Section 80CCD(1)

Tax on Amount received back from the National Pension Scheme

The contribution made to the NPS Scheme would be received back by the employee as Pension after retirementor on surrender of the policy (as the case may be). The amount so received as Pension or on closure of the NPS

Account either by the individual himself or by the nominee which has earlier been claimed as a deduction underSection 80CCD, would be regarded as Income in the hands of the recipient and would be taxed as per the

Income Tax Slabs in the year of receipt.

Recommended Read: Computation of Tax on Pension Income

If the amount received by a taxpayer has been used for purchasing an annuity plan in the same year in the year ofreceipt, the taxpayer would be deemed to have not received any amount from the NPS Scheme and therefore no

tax would be levied on the same.

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