Section 80CCD : Deduction for Contribution to Pension Fund

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Hiral Vakil

Chapter VI-A
NPS
Pension Income
Section 80CCD

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

Deduction under section 80CCD is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime
Tip
Deduction under section 80CCD is not allowed for Financial Year 2020-21 if the taxpayer opts for the new tax regime

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 INR 1.5 Lakh. To put it simply, total deduction under section 80C + section 80CCC + section 80CCD(1) should not be greater than INR 1.5 Lakh.

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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 INR 50,000.

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

For FY 2019-20, due to COVID-19 the due date for filing ITR has been extended to 30th November 2020 for all taxpayer.
Tip
For FY 2019-20, due to COVID-19 the due date for filing ITR has been extended to 30th November 2020 for all taxpayer.

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
Section  Component  Deduction
80CCD(1) Employees Contribution to Pension Fund INR 1,50,000
Section 80CCD(2) Employees Contribution to Pension Fund 10% of Basic Salary
Section 80CCD(1B) Voluntary Contribution to NPS INR 50,000
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ITR for Salaried Individuals
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ITR Form Applicable

The taxpayer can claim deductions u/s 80CCD while filing ITR if all the above-mentioned conditions are full-filled. Individuals/HUFs can claim 80CCD in any of the ITR forms, i.e, ITR 1ITR 2ITR 3, and ITR 4 depending upon their income sources. The due date for filing ITR is 31st July of the next FY if the tax audit is not applicable.

For FY 2019-20, due to COVID-19 the due date for filing ITR has been extended to 30th November 2020 for all taxpayer.
Tip
For FY 2019-20, due to COVID-19 the due date for filing ITR has been extended to 30th November 2020 for all taxpayer.

Supporting Documents

Taxpayers can present the following documents apart from the common documents such as Form 16:

  1. Receipts of Contribution to Retirement Benefit Pension Scheme- 80CCD1 (by the employee)
  2. Receipts of Contribution to Retirement Benefit Pension Scheme- 80CCD1B (by the employee)
  3. Receipts of Contribution to Retirement Benefit Pension Scheme- 80CCD2 (by employer)
Tax Savings & Deductions: Section 80C, 80CCE, 80D, 80TTA & others
Learn more about the deductions that can be claimed on certain expenses
Read More
Tax Savings & Deductions: Section 80C, 80CCE, 80D, 80TTA & others
Learn more about the deductions that can be claimed on certain expenses
Read More

FAQs

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.

Can I invest more than INR 50,000 in NPS?

From Financial Year 2015-16, it is possible to invest an additional amount of INR 50,000 (or more) to your NPS Tier I account and claim tax deduction on the same. Note that that NPS is the only investment option which allows an Individual to claim additional tax deduction under section 80 CCD (1B).

Which Tier is better NPS?

Tier 2 gives more flexibility to Senior Citizens in terms of withdrawals. However, the contribution to Tier 2 isn’t tax-exempt. Meaning not just the interest but the entire contribution is tax liable.

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