Section 80CCD

Overview

Section 80CCD of the Income Tax Act of 1961 applies to income tax deductions authorised to personal tax assessees on the addition made towards suggested pension schemes from the central government to the NPS (New Pension Scheme). Employer’s participation on the part of employees towards the NPS is also involved in the corresponding section as per the regulations of the Income Tax Act.

Features of National Pension Scheme (NPS)

National Pension Scheme is a savings scheme supported by the Government of India to create a retirement corpus for Indian residents or citizens.

• It’s a compulsory approval for central government representatives.
• Other than the central government representatives, others can also subscribe to the National Pension Scheme optionally
• It has to be performed continuously till the age of 60 years.
• Further, Rs. 6000 is the lowest contribution allowed for a Tier I account of the NPS.
• It gives you several types of investments to decide from, like government contracts, equity stocks, and solid income bearing instruments. In spite of this, equity allocation cannot be greater than 50%.
• It’s a market-linked financing or investment scheme with very few fund administration cost
• At the age of 60, you are permitted to withdraw 60% of the incomes in a lump sum and the balance 40% has to be changed to an annuity plan.
• The partial exit is also possible as an alternative. Still, 80% of the withdrawal proceeds have to be placed in an annuity.
• Additionally, partial withdrawals up to 25% are provided only in some particular cases based on the idea of withdrawal.
• Major plans of the National Pension Scheme are central government and state government pension schemes.

What Is the New Pension Scheme?

The New Pension Scheme is an investment supported by the Government of India. It is regulated by the Pension Fund Regulatory and Development Authority (PFRDA). This is also known as the National Pension Scheme. The primary purpose of the result is to improve the investor’s prospects so as to build a retirement corpus. Any special resident or non-resident, among the ages of 18-60 years can invest in a new pension scheme. The system is planned into two classes of NPS accounts.

• NPS Tier 1: It is essential for a retirement plan. As the purpose is to build a retirement corpus, investment is expected for the high term and limits on withdrawal. After the maturity period, 40% of the investment corpus has to be turned into an annuity and the remaining 60% can be withdrawn.
• NPS Tier 2: Primarily, this investment is suggested for short-term or medium-term requirements. It’s a voluntary statement. Only Tier 1 investors can spend on this. There are no limitations on the withdrawal also.

What Are the Tax Procedures of Investment in the National Pension Scheme?

There are two segments under Section 80CCD based on which one can provide to the National Pension Scheme. For maintaining tax deductions, one must consider whether it is self-participation or company provided while filing the income tax returns. One is required to create a transaction record as a proof for declaring income tax deductions.

Section 80CCD(1)

Section 80CCD(1) of The Income Tax Act of 1961 proceeds with implementing tax deductions to all the assessees or taxpayers who contribute to the NPS. The result under the section is open to both salaried people (operated by the Government or any additional company) and self-employed people. Here are the tax benefits accessible under Section 80CCD(1):

• The tax deductions provided is Rs. 1.5 lakhs. This purpose is included in the Section 80C limit.
• In the case of salaried people, the maximum deduction cannot pass 10% of their annual salary, i.e., Basic + Dearness Allowance.
• In the case of non-salaried people, the maximum deduction cannot pass 10% of the total income for the particular financial year.

Let’s assume this with an example. Let’s say a person is a central government employee and pays Rs. 50,000 into his/her pension fund. Salary formation is as below:

Basic Salary – Rs. 1,80,000

Dearness allowance (DA) – Rs. 80,000

Other Fees and Perquisites payable – Rs.1,00,000

Expenses under Section 80C – Rs.1,00,000

Now, they can declare only Rs. 26,000 (10% of basic and dearness allowance) under Section 80CCD(1)

Section 80CCD(2)

An organisation can also provide to the employees’ pension fund under the corporate form of the National Pension Scheme. Further, contributions can be in three ways.

• An employer can get a contribution that is similar to the employee’s participation
• The company can also offer higher or lower than that of the employee’s contribution
• The organisation can also contribute on account of an employee

On the tax front, both company and employee can be profited by these contributions. An organisation can demand a tax benefit by showing their part of a contribution as a trading expense in the loss and profit account. An employee can get a benefit of tax deduction in case his/her company contributes to the pension scheme on behalf of them. If an executive contributes to the new pension scheme for an employee, then that employee can claim a tax deduction for such participation under Section 80CCD(2) of the Income Tax Act, 1961.

The maximum acceptable amount of deduction is least one of the following three provisions:

• The contribution given by employer towards pension scheme
• 10% of an individual’s annual or yearly salary (basic + dearness allowance)
• Gross income

This available deduction is above and beyond the limit of Section 80C. The self-employed are not qualified for this deduction. It refers to only salaried people.

Section 80CCD(1B)

This is a unique subsection included to support people to invest more in the NPS by providing an added deduction interest in regard to contributions given by individual assessees (both self-employed and salaried) up to the limit of Rs. 50,000. Here are the tax benefits possible under Section 80CCD(1B):

• This is a new section added after the measures of 2015 Union Budget.
• Additionally, this section gives an added tax benefit of up to Rs. 50,000 for the additions made towards the New Pension Scheme.
• Both un-employed and employed people can avail of this benefit under the Section.
• The approved deduction is over and above the purpose of Section 80CCD(1)

Eligibility to Maintain Tax Deductions under Section 80CCD

• As per the requirements under Section 80CCD of the Income Tax Act of 1961, tax results are provided for the additions done towards NPS by a person. Contributions given by companies towards the NPS on account of employees are additionally provided for tax deductions under the section.
• The deduction can be required up to the limit of 10% of gross annual income (in case the self-employed) or 10% of the basic annual salary (basic + dearness allowance). The upper limit on the quantum of a request under Section 80CCD(1) and Section 80CCD(2) is up to 1.5 lakhs
• A further deduction of Rs. 50,000 is included in Section 80 CCD(1B) for any person doing a self-contribution towards NPS. Besides this total deduction provided amounts to Rs. 2 lakhs in a year.
• These results can be required at the rate of filing the ITR.
• Additionally, tax deductions under this section are available only to people and not HUFs or Hindu Undivided Families.
• A person maintaining tax deductions under Section 80CCD may be a citizen or non-resident of the country.
• Any tax deductions required under Section 80CCD cannot be maintained under Section 80C

FAQs on Section 80CCD

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