Section 80CCD Of The Income Tax Act

Section 80CCD of the Income Tax Act, 1961 is a provision for tax deduction to benefit contributions made to NPS (National Pension Scheme) and APY (Atal Pension Yojana).

This deduction is most widely used by taxpayers in India. However, it has different parts and specific rules that need careful attention.

Here is everything you need to know about Section 80CCD of the Income Tax Act.

What Is Section 80CCD Of The Income Tax Act?

Section 80CCD of the Income Tax Act, 1961 provides a tax deduction for the employee’s and employer’s contributions made to the National Pension Scheme (NPS) and Atal Pension Yojana (APY).

We will first discuss the applicable discussions for NPS, as it is more commonly used, and then cover the tax deductions for the APY scheme.

Section 80CCD - Subsections

Deductions under 80CCD are available under two subsections: Section 80CCD(1) and Section 80CCD(2).

• Section 80CCD(1) - Contributions made by the employees, both salaried and self-employed, to NPS
• Section 80CCD(2) -  Contributions made by employers to NPS

Section 80CCD(1) Deduction

Section 80CCD(1) provides a tax deduction for the employee’s contributions to NPS.

Who Can Claim Section 80CCD(1) Deduction? - Eligibility Criteria

• This applies to government employees, private employees and self-employed individuals.
• Taxpayers between the ages of 18 and 70 years can invest in the 80CCD pension fund.
• Indian citizens and Non-Resident Indians (If the NRI changes their citizenship after investing in the NPS, the NPS scheme gets terminated.)

Section 80CCD(1) Deductions - Old Regime vs. New Regime

Section 80CCD(1) deduction is applicable only to taxpayers who opt for the old regime.

How Much Can I Claim Under Section 80CCD(1)? - Deduction Limits

However, the overall maximum Section 80CCD(1) deduction is limited to ₹1.5 lakhs per financial year. (refer to the illustrations below for a better understanding.)

The 80CCD(1) contribution to the pension scheme of the central government is part of the combined limit under Section 80CCE.

Maximum deduction under Section 80CCE (covering Section 80C + Section 80CCC + Section 80CCD(1)) is ₹1.5 lakhs.

Section 80CCD(1B)

Section 80CCD(1B) provides an additional tax deduction for the employee’s contribution to NPS for up to ₹50,000. It is over and above the Section 80CCD(1B) deduction.

Therefore, the maximum deduction applicable to Section 80CCD(1) and Section 80CCD(1B) is ₹2 lakhs.

Also Read: Section 80C of the Income Tax Act

Section 80CCD(2) Of The Income Tax Act

Tax deduction under Section 80CCD(2) is applicable to employees for the employer’s contribution to NPS. This tax deduction benefit under Section 80CCD(2) is available over and above Section 80CCD(1) deduction.

Who Can Claim Deductions Under 80CCD(2)? - Eligibility Criteria

• Applies only to salaried employees, both government employees and private employees. It does not apply to self-employed individuals.
• Taxpayers between the ages of 18 and 70 years can invest in the 80CCD pension fund.
• Indian citizens and Non-Resident Indians (If the NRI changes their citizenship after investing in the NPS, the NPS scheme gets terminated.)

Section 80CCD(2) Deductions - Old Regime vs. New Regime

Section 80CCD(2) deduction is applicable to taxpayers who opt for both the old and new regime. However, the deduction limits vary for employers other than the Central and State Governments.

How Much Can I Claim Under Section 80CCD(2)? - Deduction Limits

Illustrations

Here are a few illustrations to help you understand the deductions applicable to NPS under Section 80CCD(2) and Section 80CCD(1) better.

Scenario 1

Mr Nitesh is a private sector employee who contributes ₹90,000 to the National Pension Scheme. His salary, including basic and dearness allowance, is ₹7 lakhs per annum. His investments that qualify for a claim under Section 80C are ₹50,000.

The Section 80CCD(1) deduction can be calculated as follows:

Hence, the entire NPS contribution qualifies for the Section 80CCD deduction.

Scenario 2

Mr Vignesh is a government employee. His total contribution to the NPS is ₹60,000. The contribution is shared equally between the employee and the employer, with each covering 50%. His salary, including basic and dearness allowance, is ₹5 lakhs per annum. His investments that qualify for a claim under Section 80C are ₹75,000.

The Section 80CCD(1) deduction and deduction under 80CCD(2) can be calculated as follows:

Hence, the entire NPS contribution qualifies for the Section 80CCD deduction.

National Pension Scheme (NPS) Under Section 80CCD

NPS is a government-sponsored pension scheme in which individuals can invest an amount regularly during their working years and receive a regular income after retirement.

The amount deposited in the NPS is invested in the financial securities market. Investors can choose between the equity funds, government securities, bonds, etc.

It offers tax savings during the investment period and is applicable to both salaried and self-employed individuals.

At retirement, investors can withdraw 60% of this corpus and must invest the remaining amount in an annuity plan for a regular income.

Types of NPS Accounts

• Tier 1 - Pension Account

• Tier 2 - Additional Account

Documents Required To Claim Deductions Under NPS

• Aadhaar Card
• PAN Card
• Bank Account Statement
• Annual Transaction Statement (Tier 1)

Atal Pension Yojana (APY) Under Section 80CCD

Atal Pension Yojana (APY) is a government-sponsored pension scheme that provides a regular income after retirement. It is also popularly called Pradhan Mantri Pension Yojana.

The scheme is open to individuals between 18 and 40, and the pension starts when they turn 60.

In the event of the death of the investor, the spouse can receive the payments. If it is a premature death before 60 years of age, the spouse can continue the scheme or withdraw the entire amount.

Key Pointers To Remember For Tax Deductions Under 80CCD

• NPS is compulsory for Central Government employees and some State Government employees, while it remains voluntary for others.
• Section 80CCD deductions apply to both government and private employees and self-employed individuals.
• Tax deduction benefits availed of under Section 80CCD cannot be availed of again under Section 80C.
• The maximum deduction applicable to Section 80CCD(1) and Section 80CCD(1B) is ₹2 lakhs. ​The maximum deduction under Section 80CCE (covering Section 80C + Section 80CCC + Section 80CCD(1)) is ₹5 lakhs and Section 80CCD(1B) is ₹50,000.
• The additional tax deduction benefit available under Section 80CCD(1B) is for self-contribution only.
• Only the investments made in NPS Tier 1 accounts qualify for the tax deduction under Section 80CCD.
• Deductions under 80CCD(2) are applicable to the employees for their employer's contribution to the NPS.
• At maturity, the lump sum amount (60% of the accumulated corpus) withdrawn from NPS is tax-exempt. However, any amount received from NPS as a regular income will be taxed according to applicable tax laws.
• The benefit received from the National Pension Scheme reinvested in the pension plan or annuity plan, is entirely tax-exempt.
• Taxpayers can claim the deductions under Section 80CCD of the Income Tax Act, 1961, at the end of the financial year while filing their Income Tax Returns.
• Proof of payment is required to be eligible for tax deduction under Section 80CCD of the Income Tax Act.

Tax Deduction Benefits For Existing NPS Subscribers

Integrating Section 80D For Comprehensive Tax Benefits

While Section 80CCD offers tax deduction benefits for contributions to retirement pension plans, it is equally important for taxpayers to consider the advantages of Section 80D.

It offers exclusive tax deduction benefits on the annual premium paid for health insurance policies. The benefit applies to health insurance plans purchased for self, including family and parents.

Also Read: Health Insurance Tax Deductions

Reliance General Insurance offers comprehensive health insurance policies online with extensive coverage benefits catered to individual healthcare requirements.

Frequently Asked Questions About Section 80CCD of the Income Tax Act

1. Can I claim tax deductions under both 80CCD(1B) and 80CCD(2)?

   Yes, you can claim tax deductions under both Section 80CCD(1B) and Section 80CCD(2), provided you and your employer contribute towards the NPS and fulfil the required conditions.

   Section 80CCD(1B) allows an additional deduction of ₹50,000 over and above Section 80CCD(1) deduction for self contribution to NPS. On the other hand, a deduction under 80CCD(2) applies to the employer’s contribution to the NPS scheme.

2. How do you invest in NPS for tax deduction benefits?

   You can open the NPS account online through the Protean (NSDL e-Gov) portal. It can also be opened through financial institutions, such as banks and other non-banking financial institutions that act as Points of Presence (POPs).

3. What will be the investment proof to avail tax benefits under the NPS scheme?

   The Annual Transaction Statement is a valid proof of the tax benefits under the NPS scheme. It can be downloaded by logging into the Protean (NSDL e-Gov) portal.

4. What is the difference between Section 80CCD(1) and Section 80CCD(2)?

   Section 80CCD(1) applies to deductions for the NPS contributions made by the employee. On the other hand, Section 80CCD(2) applies to deductions for the NPS contributions made by the employer.

5. How much can I claim for the employer’s contribution to the NPS?

   The maximum deduction limit for an employer’s contribution to the NPS is 14% for central government employers. For other employers, it is 10% under the old tax regime and 14% under the new tax regime.

6. Which tax regime is better for NPS contributions?

   If you have and your employer has contributed largely to the NPS scheme, the old tax regime is beneficial. This is because an employee can claim deductions up to ₹2 lakhs in addition to the deductions under 80CCD(2) for the employer’s contribution.

7. If I opt for the new tax regime, can I claim deductions under Section 80CCD?

   Deductions applicable to Section 80CCD(1) and Section 80CCD(1B) are applicable only to taxpayers opting for the old tax regime. However, the deductions applicable to Section 80CCD(2) for the employer’s contribution are available under both the new and old tax regimes.

8. Can I claim tax deductions under both Section 80C and Section 80CCD?

   You can claim tax deductions for investments made in eligible savings or investment products and the amount spent on specified purposes under Section 80C.

   On the other hand, you can claim tax deductions for the NPS contributions under Section 80CCD. The maximum deduction limit for Section 80C, Section 80CCC and Section 80CCD is ₹1.5 lakhs.

   However, you cannot claim for NPS deduction both under Section 80CCD and again under Section 80C.

Relevant Links for Health Insurance

Health Insurance | Health Insurance Plans For Family | Health Insurance For Senior Citizens | Health Insurance Premium Calculator | Health Insurance For Parents | Critical Illness Insurance | ​ Maternity Insurance | Personal Accident Insurance | Cashless Health Insurance | Arogya Sanjeevani Policy | Super Top Up Health Insurance | Group Mediclaim Policy | International Health Insurance | Health Insurance For Kids | Individual Health Plans | Insurance For Disabled | Reliance Health Gain Policy | Reliance Health Infinity Insurance | ​ Saral Suraksha Bima | Hospi Care Insurance

Health Insurance for Top Loactions

Health Insurance In Hyderabad | Health Insurance In Chennai | Health Insurance In Mumbai | Health Insurance Pune | Health Insurance Kolkata | Health Insurance In Jaipur | Rajasthan Health Insurance | Health Insurance Noida | Health Insurance Chandigarh | Health Insurance West Bengal

Disease-Specific Health Insurance

Dengue Disease | Heart Attack Disease | Migraine Disease | Thyroid Disease | Diabetes Disease | Typhoid Disease | Psoriasis Disease | Appendicitis Disease | Herpes Disease | Eczema Disease | Epilepsy Disease | ​ Skin Allergy Disease | Lasik Eye Surgery | Gangrene Disease | Alzheimer'S Disease | Bone Fracture Disease | Adhd Disease | Bone Cancer Disease​ | Diabetics Disease​

Disclaimers:

*T&C Apply. For more details on risk factors, terms conditions, brochure, and exclusions, please read the policy wording and CIS carefully before concluding a sale.

Tax benefits: Tax benefits are subject to conditions under Section 80D of the Act and amendments thereof. The tax laws are subject to amendments/changes from time to time. Please consult your tax advisor for details.