Section 80CCD: Deduction for Contribution to Pension Fund
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.
Under section 80CCD(1), deduction is allowed to any individual whether salaried or not subject to following limit.
- In case of salaried person, 10% of his salary in the previous year; and
- 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.
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)]
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.
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.
2. 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).
3. Which Tier is better NPS?
Tier 2 gives more flexibility to Senior Citizens in terms if withdrawals. However the contribution towards Tier 2 aren’t tax exempt. Meaning not just the interest but the entire contribution is tax liable.