Saving for retirement years is an essential part of financial planning for any individual and the income tax act provides several provisions to encourage taxpayers to save for retirement. One such provision is Section 80CCD of income tax act. Any individual who contributes towards the NPS – National Pension Scheme or Atal Pension Yojna (APS) can claim a Section 80CCD deduction.
What is 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).
There are three parts of section 80CCD that allow tax deduction subject to different conditions and limitations.
Note: If the taxpayer opts for the new tax regime, the taxpayer cannot claim 80CCD (1) and (1B) deductions.
Section 80CCD (1)
Section 80CCD (1) allows tax deductions to all individuals. Hence, whether the contribution is made by a salaried individual or a self-employed individual is irrelevant.
Below are the deduction limit u/s 80CCD (1):
| 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 case of salaried individuals. Further, 80CCD (2) can be availed in addition to 80CCD (1).
Below are the deduction limit u/s 80CCD (2):
| Category | Maximum Deduction Limit |
| In case of a Salaried Individual | 10% of the Salary for Other Employees and 14% of the Salary for Central Government Employees |
| In case of Self Employed Individual | NA |
Section 80CCD (1B)
Section 80CCD (1B) was introduced in the Union Budget 2015. As per the amendment, any individual (whether he has claimed deduction under section 80CCD(1) (2) or not) who deposits into New Pension Scheme Account, will be allowed a deduction subject to the maximum limit of INR 50,000.
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 totals 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)
ITR Form Applicable
The taxpayer can claim the deductions while filing ITR if all the above-mentioned conditions are fulfilled. Individuals can claim this deduction in any of the ITR forms, i.e, ITR 1, ITR 2, ITR 3, and ITR 4 depending upon their income sources.
Supporting Documents
Taxpayers can present the following documents apart from the common documents such as Form 16:
- Receipts of Contribution to Retirement Benefit Pension Scheme
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 u/s 80CCD. Hence, any other person (HUF, Firm, Company) cannot claim this deduction.
Hi @Swaraj_Mangaonkar
There are certain deductions that you can claim by Investing in NPS (National Pension System)
So, overall you can reduce your taxable income by Rs 2,00,000.
And one can report deductions under section 80C while filing an ITR.
Hope it helps.
Hello @Jigar_Marvaniya
The primary goal of NPS is to provide pension after retirement (saving plan).
NPS accounts are of two types, tier I account and tier II account.
The tax benefits are only applicable to tier-I accounts.
There are multiple PFMs, Investment options (Auto or Active), and four Asset Classes i.e. Equity, Corporate debt, Government Bonds, and Alternative Investment Funds.
Here is an article to know more about it and the process details.
Hope we have addressed your query.
@Muskan_Balar Can I invest only in Tier 2 NPS and not Tier 1 ? May I know the comparison between Tier 1 and Tier 2 account?
Hi @akash_jhaveri
You can open the NPS Tier II account only when you already have a Tier I account.
Hope this helps.
@Muskan_Balar I need to do tax planning with support for 2023-2024, I have a small investment in stocks. Any guidance you may extend. Not sure if we have platform to connect 1-1. Regards
Hi @Sanjay_S
Thanks for connecting on Quicko Tax QnA. Your queries seem to be more related to personalized tax planning.
You can book a MEET where a dedicated tax expert can connect with you over a video call, understand your queries, and suggest you the best possible solutions.