(C) Deduction U/S 88CCD : Contribution to Pension Scheme of Central Government

This Section provides for deduction in respect of contribution to pension scheme of Central Government. As per this Section if an individual employed by the Central Government on or after the 1st day of January, 2004, has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with and subject to, the provision of this Section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid. or deposited as does not exceed ten per cent of his salary in the previous year.

Similarly, a non-salaried employee will be allowed deduction of a maximum upto 10% of his gross total income in the previous year. Now from 1-5-2009 all individuals are now entitled to make investment in the New Pension Scheme (NPS) within the combined maximum limit of ` 1 Lath for Sections 80C, 8OCCC and 8OCCD.

As per the Finance Act, 2011 the contribution made by the Central Government or any other employer to the Pension Scheme under Section 8OCCD(2) shall be excluded from the limit of
` 1 Lakh.

Amount contributed by employer to Pension Scheme is perquisite in the hands of the employee and tax deduction is allowed to an employee as per Section 8OCCD(l) in respect of the amount contributed by the employee. In case more than 10% of the salary is contributed to the Pension Scheme the same will not be allowed as a business expense to employer but for the purpose of taxing the employee the entire amount as contributed by employer would be taxed as “salary” of the employee. Without any upper limit, over and above the contribution of the employee, the amount as is contributed by the employer upto 10% of employee’s salary would enjoy extra deduction as per Section 8OCCD(2) without any upper limit.

Thus, if the salary of the employee is
` 10 Lakh and the employer as well as the employee contribute 10% of the salary to the Pension Scheme, then in that situation the total deduction would be ` 1 Lakh as per Section 8OCCD(l) and a further ` 1 Lakh as per Section 8OCCD(2). Hence, the total deduction would be ` 2 Lakh.
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