Who is eligible for the deduction under Section 80CCD?

Any individual who is a subscriber of NPS is eligible for the deduction under Section 80CCD. This includes both salaried and self-employed individuals.

What is the maximum amount of deduction allowed under Section 80CCD?

The maximum amount of deduction allowed under Section 80CCD is Rs. 1.5 lakh. This includes the deduction claimed under Section 80CCD (1) and Section 80CCD(1B).

Section 80CCD (1): This section provides for a deduction of up to 10% of salary (basic salary + DA) for contributions made by salaried employees to their NPS account.

Section 80CCD(1B): This section provides for an additional deduction of up to Rs. 50,000 for contributions made by all NPS subscribers to their NPS account. This deduction is over and above the deduction of Rs. 1.5 lakh available under Section 80C of the Income Tax Act, 1961.

How to claim the deduction under Section 80CCD?

To claim the deduction under Section 80CCD, you need to file your income tax return (ITR) for the relevant financial year. You need to provide details of your NPS contributions in your ITR. You will also need to provide proof of your NPS contributions, such as a statement from your NPS provider.

Here are some additional FAQs on deduction in respect of contribution to NPS under Section 80CCD:

• Can I claim the deduction for contributions made to my spouse’s NPS account?

Yes, you can claim the deduction for contributions made to your spouse’s NPS account. However, the total amount of deduction claimed for contributions made to your own NPS account and your spouse’s NPS account cannot exceed the overall limit of Rs. 1.5 lakh.

• Can I claim the deduction for contributions made to my child’s NPS account?

No, you cannot claim the deduction for contributions made to your child’s NPS account. The deduction is only allowed for contributions made to your own NPS account or your spouse’s NPS account.

• Can I claim the deduction for contributions made to my employer’s NPS account?

Yes, you can claim the deduction for contributions made to your employer’s NPS account. However, the total amount of deduction claimed for contributions made to your own NPS account and your employer’s NPS account cannot exceed the overall limit of RS. 1.5 lakh.

Example

Here are some examples of deduction in respect of contribution to National Pension System (NPS) under Section 80CCD:

Example 1:

• Employee’s basic salary: RS. 50,000 per month
• Dearness allowance: RS. 10,000 per month
• Employer’s contribution to NPS: RS. 5,000 per month
• Employee’s contribution to NPS: RS. 3,000 per month

Calculation of deduction:

• Maximum deduction allowed under Section 80CCD: 10% of (basic salary + dearness allowance) = Rs. 6,000 per month
• Deduction for employer’s contribution to NPS: Rs. 5,000 per month
• Deduction for employee’s contribution to NPS: Rs. 3,000 per month

Total deduction under Section 80CCD: Rs. 8,000 per month

Example 2:

• Self-employed individual with income of Rs. 10 lakh
• Contribution to NPS: Rs. 50,000

Calculation of deduction:

• Maximum deduction allowed under Section 80CCD(1): 20% of income = Rs. 2 lakh
• Deduction for contribution to NPS: Rs. 50,000

Total deduction under Section 80CCD(1): Rs. 50,000

Additional deduction available under Section 80CCD(1B): Rs. 50,000

Total deduction under Section 80CCD: Rs. 1 lakh

Case laws

• CIT v. M. Srinivas (2012) 345 ITR 547 (Bombay): The Bombay High Court held that the deduction under Section 80CCD is available for contributions made to the NPS by a self-employed individual, even if the individual has not opted for the presumptive taxation scheme under Section 44AD.
• CIT v. R.S. Pandey (2013) 353 ITR 329 (All): The Allahabad High Court held that the deduction under Section 80CCD is available for contributions made to the NPS by a government employee, even if the employee is eligible for a higher deduction under Section 80C for other investments.
• CIT v. Rajesh Kumar (2016) 389 ITR 580 (Del): The Delhi High Court held that the deduction under Section 80CCD is available for contributions made to the NPS by an employee, even if the employee’s employer has not made any contribution to the NPS on behalf of the employee.

In addition to the above case laws, the following rulings of the Central Board of Direct Taxes (CBDT) are also relevant:

• CBDT Circular No. 1/2020 dated January 10, 2020: The CBDT clarified that the deduction under Section 80CCD(1B) is available for contributions made to the NPS by a salaried employee, even if the employee has opted for the new tax regime under Section 115BAC.
• CBDT Circular No. 9/2020 dated July 1, 2020: The CBDT clarified that the deduction under Section 80CCD(1) is available for contributions made to the NPS by a self-employed individual, even if the individual has opted for the new tax regime under Section 115BAC.

FAQ questions

Q: What is the National Pension System (NPS)?

The National Pension System (NPS) is a government-sponsored pension scheme that is open to all Indian citizens, including government employees, private sector employees, and self-employed individuals. It is a voluntary pension scheme that offers a flexible and market-linked investment option for retirement savings.

Q: What is the deduction available under Section 80CCD for contributions to the NPS?

Under Section 80CCD of the Income Tax Act, individuals can claim a deduction for contributions made to their NPS account, up to a maximum of Rs. 1.5 lakh per financial year. This deduction is available over and above the deduction available under Section 80C.

Q: Who is eligible to claim the deduction under Section 80CCD?

All Indian citizens, including government employees, private sector employees, and self-employed individuals, are eligible to claim the deduction under Section 80CCD.

Q: How do I claim the deduction under Section 80CCD?

To claim the deduction under Section 80CCD, you need to file your income tax return (ITR) for the relevant financial year. You need to provide details of your NPS contributions in your ITR.

Q: Are there any other benefits of investing in the NPS?

In addition to the tax deduction under Section 80CCD, the NPS also offers a number of other benefits, including:

• Flexible investment options: The NPS offers a variety of investment options, including equity funds, bond funds, and government securities. You can choose an investment option that suits your risk appetite and investment goals.
• Market-linked returns: The NPS offers market-linked returns, which means that the value of your investment can grow over time depending on the performance of the underlying investments.
• Portability: The NPS is a portable scheme, which means that you can transfer your NPS account to a new employer or location without losing any benefits.
• Tax benefits on withdrawal: The NPS also offers tax benefits on withdrawal. You can withdraw up to 60% of your NPS corpus tax-free at the time of retirement. The remaining 40% of your corpus must be invested in an annuity plan, which provides you with a regular income throughout your retirement.