Central Government of India introduced a New Pension Scheme for its employees who would join the service on or after 1-1-2004 and now this scheme is also applicable in case of other employees.
Under this scheme, the employee is required to contribute 10% of his salary towards notified pension account and it is mandatory for the employer also to contribute 10% of employee’s salary towards this fund.
Contribution made by employer in this pension scheme is fully included in the salary income of the employee and then he (Employee) is allowed a deduction u/s 80CCD(2) out of gross total income but this deduction is allowed only upto 10% of employee’s salary.
Contribution made by employee shall be eligible for deduction out of gross total income u/s 80CCD(l) to the extent of 10% of his salary.
Thus, employee’s contribution (upto 10% of employee’s salary) towards this pension account is deductible u/s 80CCD(1) and this amount is treated as part of an overall limit of ` 1,00,000 u/s 80C.
The total amount of deductions u/s 80C, 80CCC and 80CCD (other than deduction in respect of employer’s prescribed contribution) shall not exceed ` 1,00,000.
The deduction u/s 80CCD(2) in respect of employer’s prescribed contribution shall be in addition to the above combined ceiling or ` 1,00,000 [w.e.f. A.Y. 2012-13]
After retirement, the employee will get pension every month out of this pension account and the pension so received will be taxable in the hands of the recipient of pension.
Pension received out of this fund by employee or his nominee
Any amount received out of this fund by employee or his nominee -as pension shall be fully taxable in the year of receipt.
Lump sum received out of this fund by employee or his nominee on opting out of this scheme
Such amount shall be fully taxable.