Section 80CCD (1B): 2022 Guide On Section 80CCD (1B)

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

Q1. Can I claim deductions under both Section 80CCD(1B) and 80CCD(2)?

Ans: Yes, you can avail of tax benefits under both these subsections of 80CCD of ITA. However, to claim Section 80CCD(2) benefits, you need to be an employer making a contribution towards the employee’s NPS.

Q2. How to claim 80CCD(1B) benefits while withdrawing from NPS?

Ans: Section 80CCD(1B) of ITA primarily deals with tax deductions on your investment towards NPS. Therefore, note that there is no provision to avail tax benefits under this subsection of Section 80CCD of the Income Tax Act.

Q3. Who is ineligible to claim Section 80CCD(1B) benefits?

Ans: Persons of Indian Origin (PIO), Overseas Citizens of India (OCIs), and HUFs or Hindu Undivided Families cannot claim benefits under Section 80CCD(1B). It is possible for only resident and non-resident Indians to avail this benefit.

Q4. Who is eligible to receive benefits under Section 80CCD(1)?

Ans: To acquire benefits of Section 80CCD(1), an individual must belong to one of these three categories:
Private employees
Government employees
Self-employed individuals

Any of these individuals making a contribution towards the National Pension Scheme is eligible for deductions.

Q5. How can I claim Section 80CCD(1B) benefits while assessing taxes under the new regime?

Ans: The Income Tax Act does not allow individuals to receive benefits under Section 80CCD(1B) if they opt for the new regime. However, people who are still assessing their taxes under the old regime can benefit from this provision.

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