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Deduction in respect of Contribution to National Pension Scheme (NPS) of Central Government by Central Government or any other Employer [Section 80CCD]

 
  1. What is NPS -

  2. NPS covers New Pension Scheme (notified under Notification No. F.No. 5/7/2003-ECB & PR, dated December 22, 2003) and Atal Pension Yojana (as per Notification No. SO 529(E), dated February 19, 2016).

  3. Who can join NPS -

  4. An individual who is employed by the Central Government (on or after January 1, 2004) will have to join NPS on compulsory basis. Any other employee (irrespective of date of joining employment) may become member of NPS (it is optional). Even a self-employed person may join NPS.

  5. Employer’s contribution to NPS -

  6. Is it income - Employer’s contribution to NPS is taxable as salary income in the year of contribution.

  7. Deduction available in respect of Employee’s / Assessee’s Contribution to NPS [Section 80CCD(1)]:

  8. The deduction under this section is allowed to—

    1. an assessee who is an individual and is employed by the Central Government on or after 1-1-2004 or by any other employer (the date of employment with other employer is not relevant), or
    2. any other assessee being an individual.

    The deduction is allowed on account of—

    1. any amount not exceeding 10% of salary of the previous year paid or deposited by the employee in his account under the notified pension scheme;
    2. any amount contributed by any other assessee being an individual to such pension scheme not exceeding 20% of his gross total income in the previous year.
  9. Additional Deduction of Rs. 50,000 under section 80CCD(1B):

  10. The employee or the individual referred to in section 80CCD(1), shall be allowed a deduction in computation of his total income, [whether or not any deduction is allowed under section 80CCD(1)] to the extent of—

    1. the whole of the amount paid or deposited in the previous year, or
    2. Rs. 50,000

    whichever is less.

    However, no deduction under section 80CCD(1B) shall be allowed in respect of the amount on which a deduction has been claimed and allowed under section 80CCD(1).

  11. Deduction available in respect of Eemployer’s Contribution to NPS [Section 80CCD(2)]:

  12. Any amount contributed by the employer (i.e. Central Government or any other employer) to such pension scheme shall be allowed as deduction for an amount not exceeding 20% of the salary of the employee in the previous year.

  13. Taxability of amount received from pension scheme [Section 80CCD(3)]:

    Where any amount standing to the credit of the assessee in his account referred to in section 80CCD(1) or (1B), in respect of which a deduction has been allowed under those sub-sections or section 80CCD(2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—

    1. on account of closure or his opting out of the pension scheme referred to in section 80CCD(1) or (1B); or

    2. as pension received from the annuity plan purchased or taken on such closure or opting out, the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.

    However, the amount received by the nominee, on the death of the assessee, under the circumstances referred to in clause (a) above, shall not be deemed to be the income of the nominee.

    Further, the following amount withdrawn from pension scheme shall be exempt to the extent provided below.

    1. Any payment from National Pension System Trust to an employee on account of closure or his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed 40% of the total amount payable to him at the time of closure or his opting out of the scheme, shall be exempt from tax as per section 10(12A).

    2. Any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 and the regulations made thereunder, to the extent it does not exceed 25% of the amount of contributions made by him.

  1. Tax Treatment of Pension

The amounts standing to the credit of an assessee in NPS, for which a deduction has already been claimed by the assessee, and accretions to such account, shall be taxed as follows –

1. Partial withdrawal from NPS (to the extent it does not exceed 25% of an employee’s contribution)

Exempt

2. Amount received by an employee [or a non-employee (applicable from the assessment year 2019-20)] on closure of his account or on his opting out of the NPS

40% Exempt

3. In (2), amount is received by a nominee on the death of the assessee

Exempt
Pension received out of NPS Taxable

Amount received in (2), (3), (4) is utilized for purchasing an annuity plan in the same previous year

Exempt

6. Pension received out of annuity plan purchased in (5)

Taxable
  1. Is there any Combined Maximum Ceiling

The aggregate amount of deduction under section 80C, section 80CCC and section 80CCD(1) [excluding employer's contribution to pension scheme or contribution made by the assessee under section 80CCD(1B)] shall not, in any case, exceed Rs. 1,50,000.

However, employer’s contribution towards NPS (to the extent of 10% of employee’s salary) shall not be considered for the ceiling of Rs. 1,50,000.

Deductions to be made in Computing Total Income [Sections 80A to 80U (Chapter VIA)]

Related Topics...Deductions from Gross Total Income

  1. DEDUCTIONS UNDER 'CHAPTER VI-A' IN RESPECT OF "PAYMENT & INVESTMENT" ARE ALLOWED FROM SECTION 80C TO 80GGC

    Section 80C Section 80CCC Section 80CCD
    Section 80CCG Section 80D Section 80DD
    Section 80DDB Section 80E Section 80EE
    Section 80G Section 80GG Section 80GGA
  2. DEDUCTIONS UNDER 'CHAPTER VI-A' IN RESPECT OF "INCOMES" ARE ALLOWED FROM SECTION 80-IA TO 80U

    Section 80-IA Section 80-IAB Section 80-IAC
    Section 80-IB Section 80-IBA Section 80-IC
    Section 80-ID Section 80-IE Section 80-JJA
    Section 80-JJAA Section 80-LA Section 80-P
    Section 80-PA Section 80-QQB Section 80-RRB
    Section 80-TTA Section 80-TTB Section 80-U
 

 

 
 
 
 
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