Section 80CCD provides for Income Tax deductions for contributions made to the notified Pension Scheme of the Central Govt i.e. for contribution to the National Pension Scheme (NPS). Deduction under this section is only available to Individuals, but not to HUF’s. Of course there is no restriction for allowing deduction on individual’s residential status i.e. either Resident or or Non-Resident.
Section 80CCD (1): Deduction to NPS Scheme for Contribution by the Individual
Deduction under Section 80CCD (1) is not only available to salaried individuals, but also non-salaried individuals can contribute to the NPS Scheme and avail deduction for the same.
The maximum amount allowed as a deduction under Section 80CCD (1) is;
In case of salaried employee: 10% of Salary (here salary includes Dearness Allowance but excludes all other Allowances and Perquisites).
In case of non-salaried: 10% of the gross total income in the financial year. Gross total income refers to; total income chargeable to tax under five heads after all deductions.
Till Financial Year 2014-15, the the contributions are restricted to Rs. 1,00,000 for claiming deduction purpose under Sub Section 1A of Section 80CCD. To encourage people to contribute more towards NPS, the maximum amount allowed to be invested in National Pension Scheme has been increased from Rs. 1,00,000 to Rs. 1,50,000.
With respect to the amendment vide Budget 2015 (announced dated February 28, 2015) in Section 80CCD; a new sub-section 1B has also been introduced so as to provide for additional deduction in respect of any amount paid, of upto Rs. 50,000 for contributions made by any Individual assessees under NPS. This additional benefit of Rs. 50,000 is over and above the benefit of Rs. 1,50,000 allowed to be claimed as a deduction under Section 80C. Therefore, now the total deduction that can be claimed under Section 80C + Section 80CCD = Rs. 2,00,000
Section 80CCD(2): Deduction to NPS Scheme for Contribution by the Employer;
In case any employer contributes to the NPS Scheme on behalf of the employee and the benefit of the same would be availed by the employee, the employee would also be allowed a deduction under Section 80CCD (2) for the amount of contribution made by the employer.
The contribution made by the employee himself to the NPS Scheme is allowed as a deduction under section 80CCD (1) and the contribution made by the employer to the NPS Scheme is allowed as a deduction under Section 80CCD (2).
Though contribution made by the individual, under Section 80CCD (1) has it’s maximum limit, but for contribution made by the employer to the NPS Scheme under Section 80CCD (2) for the benefit of employee, has no maximum limit for deduction. Remember, the deduction under Section 80CCD (2) is over and above the deduction of allowed under Section 80C + Section 80CCC + Section 80 CCD (1)