Section 80CCD: Deduction for Contribution to Pension Fund

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By Hiral Vakil on March 7, 2019

Who can claim deduction u/s 80CCD?

Any individual who contributes towards the National Pension Scheme (NPS) can claim an income tax deduction under this section. There are three parts of section 80CCD which allows deduction subject to different conditions and limitations.

What is NPS?

Section 80CCD(1)

Under section 80CCD(1), deduction is allowed to any individual whether salaried or not subject to following limit.

  1. In case of salaried person, 10% of his salary in the previous year; and
  2. In any other case, 20% of his gross total income in the previous year.

The total deduction allowed under section 80CCD(1) will be subject to the threshold limit of Rs. 1.5 Lakh. To put it simply, total deduction under section 80C + section 80CCC + section 80CCD(1) should not be greater than Rs. 1.5 Lakh.

Section 80CCD(1B)

Any individual [whether he has claimed deduction under section 80CCD(1) or not] who deposits into New Pension Scheme Account, will be allowed a deduction subject to maximum limit of Rs. 50,000.

This deduction of Rs. 50,000 is independent from the threshold limit of Rs. 1.5 Lakh [for section 80C + Section 80CCC + Section 80CCD(1)]

Section 80CCD(2)

In the case of salaried employees, any contribution made towards their pension account by the employers will be allowed as a deduction under section 80CCD(2). Deduction under this section should not exceed 10% of the salary in the previous year.

Tax benefits of NPS (National Pension Scheme)
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FAQs:

1. Is withdrawal from NPS taxable?

Any withdrawal from NPS is exempt to the extent of 25%. However, any payment received upon closure of an account or opting out is exempt up to 40%. The whole amount received by the nominee of an account holder is exempt from tax.