Saving for retirement years is an essential part of financial planning for any individual and the Income Tax Act provides several provisions like deduction under section 80CCD to encourage taxpayers to save for retirement. Any individual who contributes towards the NPS – National Pension Scheme or Atal Pension Yojna (APS) can claim a Section 80CCD deduction.
Basics of Section 80CCD
Section 80CCD deduction of income tax act allows individuals (between the age of 18-60 years) to avail of tax deduction against any contribution made towards the Pension Scheme of the Central Government, National Pension Scheme (NPS), or Atal Pension Yojna (APY).
Three parts of section 80CCD allow tax deduction subject to different conditions and limitations.
Note: If the taxpayer opts for the new tax regime, then they will not be eligible to claim the deduction under this section.
Section 80CCD(1)
Section 80CCD(1) allows tax deductions to all individuals. Further, this section is also applicable to NRI individuals.
Below are the deduction limit under this section:
| Category | Maximum Deduction Limit |
| In case of a Salaried Individual | 10% of the Salary (Basic + DA) up to INR 1.5 lakh |
| In case of Self Employed Individual | 20% of Gross Total Income up to INR 1.5 lakh |
Section 80CCD(2)
Employers can contribute to an employee’s NPS account. The contribution can be equal to or more than the contribution of the employee. Section 80CCD(2) is eligible in the case of salaried individuals. Further, 80CCD(2) can be availed in addition to 80CCD(1).
Below are the deduction limits under this section:
| Category | Maximum Deduction Limit |
| In case of a Salaried Individual | 14% of the Salary for Government Employees and 10% of the Salary in case of Other Employees |
| In case of Self Employed Individual | The deduction under this section is not available for self employed individuals |
Section 80CCD(1B)
Under this section, any individual can claim the deduction for the amounts deposited under the New Pension Scheme Account up to a maximum of INR 50,000. Further, this deduction is over and above the deductions available u/s 80CCD(1) and 80CCD(2). Hence, the individual can claim a deduction under all these sections altogether while filing the return for a relevant financial year.
Note: This deduction of INR 50,000 is independent of the threshold limit of INR 1.5 Lakh [for section 80C + Section 80CCC + Section 80CCD(1)]
Examples
Let us take examples to understand the calculation of the deduction limits better:
Example 1: Ajay is a salaried individual and makes an NPS contribution of INR 30,000.
His salary structure is as below:
| Basic Salary | INR 3,50,000 |
| Dearness Allowance | INR 1,50,000 |
| Investments under Section 80C | INR 80,000 (Hence, Section 80C available limit is INR 1,50,000 – INR 80,000 = INR 70,000) |
Eligible Deduction will be lower of the following:
(i) NPS contribution i.e., INR 30,000
(ii) 10% of Basic Salary + DA i.e., INR 50,000
Hence, Ajay can claim INR 30,000 u/s 80CCD(1) per financial year.
Assuming that the investments made under Section 80C in the aforementioned example total up to INR 1,30,000, the deduction will be limited to the unused amount of INR 20,000.
Example 2: Mr. Harshil is a Central Government employee contributing INR 40,000 under the NPS scheme. Further, his employer contributes the same amount i.e., INR 40,000 to the scheme.
His salary structure is as below:
| Basic Salary | INR 4,50,000 |
| Dearness Allowance | INR 1,50,000 |
| Investments under Section 80C | INR 70,000 (Hence, Section 80C available limit is INR 1,50,000 – INR 70,000 = INR 80,000 ) |
Eligible Deduction will be lower of the following:
(i) NPS contribution i.e., INR 40,000
(ii) 10% of Basic Salary + DA i.e., INR 60,000
Hence, Harshil can claim INR 40,000 u/s 80CCD(1) per financial year.
Apart from this, Mr. Harshil can also deduct the employer’s contribution u/s 80CCD(2). The eligible deduction here will be lower of the following:
(i) NPS contribution i.e., INR 40,000
(ii) 14% of Basic Salary (in case of government employee) + DA i.e., INR 84,000
Hence, Harshil can claim the whole of INR 40,000 u/s 80CCD(2)
Supporting Documents
Taxpayers can present the Receipts of Contribution to Retirement Benefit Pension Scheme apart from the common documents such as Form 16.
FAQs
No, Section 80CCD is not included in Section 80C. The latter tax deduction can be claimed for investments such as PPF, ELSS, ULIP, etc. while the former tax deduction can be specifically claimed for NPS and APY.
Section 80CCD(1B) allows an additional tax deduction of INR 50,000 for contributions made by individual taxpayers towards NPS. This tax deduction is over and above the deduction of INR 1.5lakh available under 80CCD(1) & (2).
Only Individual taxpayers qualify for tax benefits under this section. Hence, any other person (HUF, Firm, Company) cannot claim this deduction.