Deduction u/s 80CCD (NPS)

This deduction basically availed by the individuals being as a salaried employee or as self employed against the contribution made towards Pension Funds notified by Central Government such as National Pension Scheme (NPS).

Now, for our better understanding we will divide this section in 3 parts, which are as under:

  1. Section 80CCD(1) – For Contribution made by Salaried Employees or Self Employed person
  2. Section 80CCD(1B) – Additional deduction over and above Section 80CCD(1)
  3. Section 80CCD(2) – For Contribution made by Employer for his employees

1. Section 80CCD(1) – For Contribution made by Salaried Employees or Self Employed person

This provision is applicable to all the employees i.e Government as well as Non- Government and to those people who are self- employed. In this section there is no specification for resident that means this is applicable for the Non Resident Individuals as well.

The deduction u/s 80CCD(1) quantified as follows:

  1. i) For Employees – 10% of his salary in the previous year
  2. ii) For Self Employed Person – 20% of his gross total income in the previous year

Note: For the purposes of this section, “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites

2. Section 80CCD(1B) – Additional deduction over and above Section 80CCD(1)

This sub section is introduced by Finance Act, 2015. As per this sub-section the assessee i.e Salaried employee or Self-Employed person both can claim additional Rs 50,000/- as deduction which is over and above Rs. 150000 as available u/s 80C, 80CCC and 80CCD(1). This is also for the contribution made towards notified pension scheme.

3. Section 80CCD(2) – For Contribution made by Employer or Central Government

This section comes into play when the Central Government or any other employer makes any contribution to the account of an assessee referred in Section 80CCD(1). Now, how this deduction will work in Income Tax Return is little different as compared to other deductions.

To claim deduction u/s 80CCD(2), follow 2 steps:

i) First add that contribution in salary income

ii) and then claim deduction under Chapter VI-A, upto maximum of 10% of salary (Remember in case of Government employees it is 14%)

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