Section 80CCD Deduction and Eligibility on NPS & APY in India

Section 80ccd of Income Tax allow the deduction to assesses who contributes funds toward the National Pension Scheme (NPS) and Atal Pension Yojana (APY).

These schemes are offered by the Central Government. This section covers the contribution of both the employer and employee in the pension scheme of employees.

In the following we have completely explained about national pension scheme and deduction allowed to employee and self-employee person separately under section 80ccd of income tax act.

What is the National Pension Scheme (NPS)?

This scheme is set up by the Central Government.
It is helpful for building up retirement Corpus.
Only persons of 18 to 60 years of age can contribute to NPS.
One has to contribute consistently in this scheme till the age of 60 years.
This scheme is mandatory for Central Government employees but it is voluntary for the other employees.
To avail the tax deductions under Tier 1 of the NPS under section minimum monthly contribution should be INR 500 and annually it should be INR 6000.
And for Tier 2 of NPS section monthly contribution should be of INR 250 and annually it should be INR 2,000.
There is also an option to choose from various investment options like equity funds, Government Bond etc.
Partial withdrawal is allowed up to 25% of the contribution made by an individual, subject to certain conditions.
Individuals can withdraw up to 60% of the corpus as a lump-sum payout and have to invest the remaining 40% in an annuity plan.
The basic motive behind the NPS is to help individuals create a retirement corpus and receive a fixed monthly payout to help them to comfortable life post-retirement.

What is the deduction allowed under section 80CCD?

Deduction under section 80ccd of income tax act

Deduction under 80ccd is allowed on contribution to pension scheme of Central Government. [Scheme like National Pension Scheme (NPS) and Atal Pension Yojana (APY)]

Eligibility:

Deduction is allowed to:

Any employee (whether Center Government employee or not), OR
Individual who is self-employed

What is the amount of deduction under section 80ccd in case of individual is an employee?

In pension schemes both the employer and employee contributes to the fund in the National Pension Scheme. so this deduction is applicable to employees for both the contributions in the following section.

Deductions of Employee’s contribution [section 80CCD (1)]
Deduction of Employer’s contribution [section 80CCD (2)]
Additional Deduction [section 80CCD (1B)]

Employee’s contribution under [section 80CCD (1)]	Amount of deduction shall be lower of: Amount paid, OR 10% of salary*
Employer’s contributions under [section 80CCD (2)]	Amount contributed by the employer is firstly added in the head of salaries of employees under section 17(1) (viii). Then the deduction is available to employee which is lower of the following: Amount paid in employee’s account, OR 14% of salary* ( in case of Government employee ) or 10% of salary* ( in case of other employee )
Additional Deduction National Pension Scheme section 80ccd1b	Additional deduction is available upto rupees 50,000 in respect of contribution to NPS of the Central Government. The deduction up to rupees 50,000 is in addition to the overall limit of rupees 1,50,000 under section 80CCE.
Total Deduction	Sec 80CCD(1)+ Sec 80CCD(2)+ Sec 80CCD(1B)

* Salary means Basic salary and Dearness Allowances (which forms part of retirement benefits)

Note:

As per section 80CCE, maximum deduction allowed under section 80C+ 80CCC+ 80CCD (1) shall be rupees 1,50,000.

What is the amount of deduction under section 80ccd in case of individual is a self-employed?

Deduction under 80ccd (1) shall be least of the following:

Amount Paid, OR
20% of Gross Total Income in the previous year.

No deduction under 80ccd (2), as it is a case of self-employed, means there is no employer.
Additional Deduction up to rupees 50,000 under section 80CCD (1B) is available.
Total Deduction is Section 80CCD (1) + Section 80CCD (1B).
As per section 80CCE maximum deduction allowed under section 80C + 80CCC+ 80CCD (1) shall be rupees 1,50,000.

Common points for both employees and self employed

On the death of the assesse, the whole amount received by the nominee shall be exempted, if the same is received on account of closure of account or opting out of scheme.

Conclusion

Under Section 80CCD of Income Tax deduction is allowed to employee and self-employee person on contribution fund in National Pension Scheme (NPS) and Atal Pension Yojana (APY).

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