Every person should pay his income tax on time. There are several provisions under the Income Tax Act that give you tax deduction benefits on investments in specific modes. Section 80CCD is a very popular option.
Correct and timely payment of your income tax is essential for the economic development of the country. As a responsible citizen you must pay your taxes on time. The Income Tax Act of 1961 has several provisions that give you tax deduction benefits on investments in specific modes. Deduction under section 80CCD is one such popular option.
80CCD and National Pension System
The central government set up NPS to give benefits of an organized pension scheme to Indian citizens. The main goal of NPS is to help individuals build a retirement corpus and take a fixed monthly payment so that they can lead a comfortable life after retirement.
Section 80CCD (1)
This section lays down the rules governing the income tax deduction available to individuals for NPS contribution. However, it does not matter whether the contribution was made by a government employee, a private employee or a self-employed person. The provisions of this section are applicable to all Indian citizens in the age group of 18 to 70 years who contribute to the NPS. This also applies to NRIs.
Key provisions
• The maximum deduction under this section is 10% of the person’s salary (Basic + DA) or 10% of his gross income.
• This limit has been increased to 20% of gross total income for self-employed individuals in FY 2017-18, subject to a maximum limit of Rs 1,50,000 for a given financial year.
• A new amendment has been made in section 80CCD in the Union Budget (1B) of 2015 as sub-section 80CCD.
• Increasing the maximum deduction available under section 80CCD to Rs. 2,00,000/-. Section 80CCD(1B) Tax benefits can be claimed in addition to the deduction available under section 80CCD(1).
Section 80CCD (2)
When an employer contributes to the NPS of an employee, the provisions of section 80CCD(2) take effect. Employers can make NPS contributions in addition to PPF and EPF contributions. The employer’s contribution may be equal to or more than the employee’s contribution.
This section is applicable only to salaried employees and not to self-employed persons. The deduction available under this section is in addition to the deduction available under section 80CCD(1). Section 80CCD(2) allows salaried individuals to claim a deduction of up to 10% of their salary, which includes basic pay and dearness allowance or is equal to the employer’s contribution to the NPS.
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