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What is Section 80CCD?

Section 80CCD is a section of the Income Tax Act, 1961 that allows provisions for tax deductions to individuals against contributions they make towards the National Pension Scheme (NPS) or the Atal Pension Yojana (APY). The contributions made by employers towards their employees in the NPS are also covered under Section 80CCD.

The National Pension Scheme is an affordable pension scheme created by the central government for Indian citizens. Initially, the pension scheme was only introduced for government employees. However, over time, the scheme has been made accessible to private corporations and individuals as well. The aim of the NPS is to help citizens create a retirement fund for a financially secure future.

Investments That Come Under Section 80CCD

Section 80CCD of the Income Tax Act covers the following list of investments that can be claimed for income tax deductions. You can claim these deductions when filing for your income tax returns.

  1. All the funds paid towards the National Pension Scheme and Atal Pension Yojana by individuals are eligible for tax deductions under Section 80CCD.

  2. All the funds paid by employers for their employees towards the National Pension Scheme.

Eligibility Criteria for Section 80CCD

Following is the eligibility criteria for Section 80CCD of the Income Tax Act:

 

  1. Any self-employed or salaried individual who pays towards the National Pension Scheme or Atal Pension Yojana is eligible under Section 80CCD.

  2. Any company or corporation that pays for their employees towards the National Pension Scheme is eligible under Section 80CCD.

  3. In order to be eligible for Section 80CCD deductions under NPS Tier 1 Account, a minimum of ₹6,000 annually or ₹500 monthly must be contributed towards the NPS.

  4. In order to be eligible for Section 80CCD deductions under NPS Tier 2 Account, a minimum of ₹2,000 annually or ₹250 per month must be contributed towards the NPS.

Section 80CCD Deductions and Limit

The following is the list of income tax deductions and their limits under Section 80CCD:

 

  1. The maximum amount of deduction available under Section 80CCD is ₹2,00,000. This amount includes the additional ₹50,000 deduction available in sub-section 1B of Section 80CCD.

  2. Any tax benefits or deductions availed under Section 80CCD cannot be claimed again under Section 80C. The total combined deduction under Section 80CCD and Section 80C cannot be more than ₹2,00,000.

  3. The funds received from the National Pension Scheme post-retirement or from surrendered accounts will be taxed as per the applicable tax bracket.

  4. Any funds received from your NPS which are then reinvested into an annuity plan will remain entirely exempt from taxation.

Subsections Under Section 80CCD

Section 80CCD of the Income Tax has been further divided into two subsections, one focusing on individuals and self-employed making contributions to NPS and the other section focusing on employers making contributions to the NPS. Given below are the two subsections under 80CCD of the Income Tax Act:

 

  1. Section 80CCD (1): This subsection has provisions for income tax deductions for eligible individuals and salaried employees, between the ages of 18 to 65, who make contributions to the NPS or APY. The maximum amount of deduction under this section is 10% of an employee’s salary, 20% of a self-employed individual’s gross income or a maximum of ₹2,00,000.

  2. Section 80CCD (2): This subsection has provisions for income tax deductions for employers who make contributions to the NPS for their employees in the form of PPF and EPF. Under this subsection, 80CCD deduction cannot go above 14% of a government employee’s salary and 10% of an employee’s salary in any other organisation.   

Frequently Asked Questions about Section 80CCD

  • ✔️What comes under Section 80CCD?

    Section 80CCD of the Income Tax Act, 1961 has provisions for tax deductions for individuals and companies that make contributions towards government pension schemes like the NPS.  

  • ✔️What is the Section 80CCD deduction limit?

    The following is the Section 80CCD deduction limit:

    1. The highest amount of deduction available under Section 80CCD is ₹2,00,000. This amount includes the additional ₹50,000 deduction available in sub-section 1B of Section 80CCD.

    2. As for employers, 80CCD deduction cannot go above 14% of a government employee’s salary and 10% of an employee’s salary for any other organisation.   

  • ✔️How can I claim deductions under Section 80CCD?

    You can claim deductions under Section 80CCD at the time of filing for your annual income tax returns. While filing the tax deductions, you may also have to submit proof of contribution towards the NPS or APY.  

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