Section 80CCD : Deduction in respect of Contribution to a National Pension Scheme (NPS)

Following are the salient features of Deduction under Section 80CCD in respect of contribution to National Pension Scheme (NPS) of Central Government by Central Government or any other employer

(1)  Deduction of an Employee‘s / Assessee‘s contribution [Section 80CCD(1)]:

 The deduction under this section is allowed to—

(a)        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

(b)        any other assessee being an individual.

The deduction is allowed on account of—

(i)         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;

(ii)        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.

The ‘Atal Pension Yojana (APY)’ has since been notified for purpose of section 80CCD(1) Notification No. 7/2016, dated 19.2.2016

(2)      Deduction of Rs.50,000 under section 80CCD(1B):

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—

(a)        the whole of the amount paid or deposited in the previous year, or

(b)        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).

(3)      Deduction of Employer’s Contribution [Section 80CCD(2)]:

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 14% of salary in case of Central Government employee and 10% of the salary in case of any other employee in the previous year.

(4)      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,—

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

(b)        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, 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 60% (40% upto A. Y. 2019-20) 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).

Partial withdrawal by an employee from the National Pension System Trust [Section 10(12B)]

Any payment from the National Pension System Trust to an employee under the pension scheme referred to in section 8OCCD, 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 shall be exempt.

EXAMPLE:

Gross total income of R who is self-employed is Rs.5,90,000. He has deposited Rs.1,00,000 in public provident fund and Rs.1,70,000 in pension scheme of the Central Government. Compute his taxable income if:

(a)        does not opt to be taxed under section 115BAC

(b)        opts to be taxed under section 115BAC

SOLUTIONS :