Contribution to NPS and its deduction under Income-tax Act
Read out the relevant provisions explaining the Contribution to New Pension Scheme or National Pension Scheme (NPS) and its deduction under Income-tax Act, 1961
Provisions of section 80CCD(1): Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or, being an individual employed by any other employer, or any other assessee, being an individual has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,—
(a) in the case of an employee, 10% of his salary in the previous year; and
(b) in any other case, 20% of his gross total income in the previous year.
Provisions of section 80CCD(1B): An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, whether or not any deductions is allowed under sub-section (1), of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees.
Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).
As per section 80CCE, the aggregate deduction under section 80C, 80CCC and 80CCD(1) is restricted to Rs. 1.5 Lakhs.
Example:
Suppose an individual has contributed to NPS during the previous year amounting to Rs. 90,000 and his Gross total income was Rs. 4,00,000. In this case, assessee can claim the deduction in 2 possible ways.
- Whether he claim Rs. 80,000 (20% of GTI Rs. 4,00,000) under section 80CCD(1) and remaining Rs. 10,000 under section 80CCD(1B) or,
- He can claim Rs. 50,000 under section 80CCD(1B) and then remaining amount can claim under section 80CCD(1).
From the above example, it can be concluded that we can claim the deduction in parts i.e. partial amount under section 80CCD(1) which is covered under the aggregate limit of Rs. 1,50,000 mentioned above and the deduction of remaining portion u/s 80CCD(1B) up to Rs. 50,000 or vise-versa.
Finance Bill 2015 provides the additional deduction under 80CCD(1B) amounting to Rs. 50,000.
The extract of the same is produced below:
Extract of Memorandum explaining the Additional deduction under 80CCD
Under the existing provisions contained in sub-section (1) of section 80CCD of the Income-tax Act, 1961 if an individual, employed by the Central Government on or after 1st January, 2004, or being an individual employed by any other employer, or any other assessee being an individual has paid or deposited any amount in a previous year in his account under a notified pension scheme, a deduction of such amount not exceeding ten per cent. of his salary in the case of an employee and ten per cent. of the gross total income in case of any other individual is allowed. Similarly, the contribution made by the Central Government or any other employer to the said account of the individual under the pension scheme is also allowed as deduction under sub-section (2) of section 80CCD, to the extent it does not exceed ten per cent. of the salary of the individual in the previous year.
Sub-section (1A) of section 80CCD provides that the amount of deduction under sub-section (1) shall not exceed one hundred thousand rupees. Till date, under section 80CCD, only the National Pension System (NPS) has been notified by the Ministry of Finance.
With a view to encourage people to contribute towards NPS, it is proposed to omit sub-section (1A). In addition to the
enhancement of the limit under section 80CCD(1), it is further proposed to insert a new sub-section (1B) so as to provide for an additional deduction in respect of any amount paid, of upto fifty thousand rupees for contributions made by any individual assessees under the NPS.
Consequential amendments are also proposed in sub-section (3) and sub-section (4) of section 80CCD.
These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.
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