The government offers a slew of tax-saving deductions and exemptions, through various sections of the Income Tax Act. These deductions and exemptions can reduce your tax burden by a considerable amount, especially if you are a salaried individual. One of the most popular sections, Section 80C, is known to provide a substantial amount of deductions to taxpayers. There are several sub-sections under Section 80C, one of them being 80CCD.
Amounts contributed by an individual taxpayer to government-sponsored schemes such as National Pension Scheme(NPS) or Atal Pension Yojana(APY) qualifies for a 80CCD deduction. Employee’s contributions to the schemes can also be eligible for deductions under Section 80CCD of the Income Tax Act.
The National Pension Scheme is a central government-backed pension scheme open to those working in, both, the public and private sectors, as well as self-employed individuals. Some of the features include:
There are two sub-sections under Section 80CCD: Section 80CCD(1) and Section 80CCD(2). Section 80CCD(1) is further subdivided into Section 80CCD(1) and Section 80CCD(1b). The deduction limits for 80CCD(1) and 80CCD(1b) do not overlap.
Sections 80C and 80CCD have a common deduction limit. The combined tax savings of an individual under 80C and 80CCD cannot exceed ₹2 lakhs.
While reinvesting the maturity proceeds from NPS is exempted from tax, pension received on a monthly basis or amount received on surrendering the scheme is added to the total income and taxed accordingly
It is clearly divided into two subsections as under:
This section applies to employees’ contributions. 10% of the salary for salaried and 20% for self-employed individuals is allowed to be deducted from taxation.
Indian citizens including NRIs between 18 to 60 years of age who are self-employed or employed with central government or private companies who subscribe to NPS fall in this category.
The maximum tax benefit that can be claimed under this section is ₹2,00,000 with effect from FY 2016-17. While a maximum amount of ₹1.5 lakh is allowed as per 80CCD(1), an additional tax benefit of ₹50,000 is available as per 80CCD(1b), thereby raising the total limit to ₹2 lakhs.
Only salaried individuals can avail tax benefits under this subsection. Self-employed individuals do not qualify under this sub-section.
Deductions under this subsection can be claimed over above the deductions available under Section 80CCD(1).
Salaried and employed individuals can claim 80CCD income tax benefit in the respective ITR form when they file their annual tax returns. However, it must be specified whether the contributions made to the NPS are from the taxpayer themself or by the employer on behalf of the taxpayer. While filing your returns, you would also be required to submit transaction statements as evidence in order to claim applicable deductions.
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