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Section 80CCD : Deduction for Contribution to Pension Fund

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Hiral Vakil

Chapter VI-A
NPS
Pension Income
Section 80CCD
Last updated on April 16th, 2021

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) Employee’s Contribution to Pension Fund INR 1,50,000
Section 80CCD(2) Employer’s Contribution to Pension Fund 10% of Basic Salary
Section 80CCD(1B) Voluntary Contribution to NPS INR 50,000
ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
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ITR for Salaried Individuals
CA Assisted Income Tax Return filing for individuals having salary, one house property & income from other sources.
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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)

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.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback. :slight_smile:

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

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