Section 80CCD(1B) Of Income Tax Act: Who Can Benefit From It?

Income Tax

With the growing awareness of starting an investment journey from an early age, savings schemes like NPS, APY, etc., are gaining immense popularity. According to the latest reports, 62% of the people investing in the National Pension Scheme (NPS) are between 26 and 45 years of age. 

To encourage more people to invest in this retirement scheme, an additional deduction worth Rs. 50,000 was announced, as per Section 80CCD(1B) or Section 80ccd2 of Income Tax Act. Now, to know more about the benefits of this section, keep on reading!

About Section 80CCD(1B) of IT Act

Section 80CCD of ITA mainly facilitates deductions to individuals who contribute to the National Pension Scheme. Until 2015, as per the norms of the Income Tax Act, individuals could only avail of tax benefits of up to Rs. 1 lakh for the same. However, the Government made a few changes to this provision and announced that the maximum deduction would be Rs. 1.5 lakh from 2015 onwards. 

The launch of Section 80CCD(1B) or 80CCD 2 of the Income Tax Act enabled individuals to claim an additional deduction of Rs. 50,000 for contributions they are making towards their NPS accounts. 

This inevitably increased the maximum limit of deduction to Rs. 2 lakh u/s 80CCD of ITA.

If you are planning on investing in the National Pension Scheme, refer to the following section to know about certain intricacies of this provision. 

Also Read – Income Tax Slab Rates 2021-2022: New Vs Old Regime

Things to Remember while Availing Benefits under Section 80CCD(1B)

Make sure to keep these following pointers in mind in case you are claiming deductions under Section 80CCD(1B):

• You will only be eligible for the additional deduction of Rs. 50,000 for making a contribution towards a Tier 1 account of NPS. So, it is apparent that contributions being made towards Tier 2 NPS accounts will be ineligible for such benefits.
• It is necessary to submit certain documents related to the transaction (NPS contribution) to be able to claim deductions under Section 80CCD(1B) of the Income Tax Act.
• If the assessee passes away and the nominee decides to close the account of the National Pension Scheme, the amount he/she has received will be free from taxation. 
• In case any salaried individual decides to opt out of his/her NPS account or close it permanently, 40% of the entire amount will be exempt from taxation. 
• After reaching 60 years of age, you can decide to withdraw 60% of the overall amount as tax-free income. Note that the remaining 40% of that total amount can also remain tax-free if you buy an annuity plan using it. 

Also Read – How To Pay Income Tax Online?

Additionally, remember that for individuals making partial withdrawals from their NPS accounts, 25% of their contribution will remain tax-free. 

Final Word

Because of the deductions available under Section 80CCD(1B) of the Income Tax Act, the tax liability reduces significantly. This way, you can save a significant amount on taxes as well as create a considerable corpus for your retirement.

Frequently Asked Questions 

Before you go…

• Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!!
• Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to ₹5 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 7.89% p.a.
• How about an affordable health insurance policy👨‍⚕️ starting at a monthly premium of just ₹235? Install the Navi app now and get your policy in under 2 minutes.
• Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.

This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.