NPS Tax Relief Section: Section 80CCD of the Income Tax Act, 1961, allows deductions for contributions to pension schemes notified by the Central Government. This section primarily deals with the National Pension System (NPS) and Atal Pension Yojana (APY).
Sections 80CCD(1) and 80CCD(1B) sections offer tax benefits for saving towards your retirement. You can claim deductions for contributions to NPS and APY, with an overall maximum limit of Rs 2 lakh (including the additional deduction of Rs 50,000 under Section 80CCD(1B)).
It’s important to consider your salary/income and chosen tax regime while maximising these deductions.
What schemes are covered under Section 80CCD?
- National Pension System (NPS): This is a voluntary pension scheme offered by the government.
- Atal Pension Yojana (APY): This is a government-sponsored pension scheme targeted towards the economically weaker sections.
1. Section 80CCD(1)
This section pertains to individual contributions to the NPS, which include:
Self-employed individuals: Deduction is limited to 20% of gross total income.
Salaried individuals: Deduction is limited to 10% of salary (basic + DA).
2. Section 80CCD(1B)
This section provides an additional deduction for contributions to the NPS up to Rs 50,000. This is over and above the limit of Rs 1.5 lakh available under Section 80C.
3. Section 80CCD(2)
This section pertains to employer contributions to the NPS:
The deduction is limited to 10% of salary (basic + DA) for salaried employees.
This benefit is not available to self-employed individuals.
The benefits under Section 80CCD differ depending on the tax regime you choose:
Old Tax Regime: You can claim the full benefits of both Section 80CCD(1) (up to Rs 1.5 lakh) and the additional deduction under Section 80CCD(1B) (up to Rs 50,000), allowing a maximum deduction of Rs 2 lakh for NPS contributions.
New Tax Regime: However, if you choose the new income tax regime, you will have to forgo the deductions available under Section 80CCD (1) and Section 80CCD (1B). Nevertheless, you can still claim income tax deductions for contributions to the NPS under Section 80CCD (2) in the new regime.
