Section 80CCD Of Income Tax: Deductions For National Pension Scheme And Atal Pension Yojana

Because of their high return benefits and low-cost structure, both the National Pension Scheme (NPS) and Atal Pension Yojana (APY) are considered ideal investment options. These schemes become more profitable due to the tax deductions available under Section 80CCD.

The provisions of Section 80CCD of the Income Tax Act enable individuals contributing to Central Government pension schemes to reduce their tax liability and save for their retirement. However, certain rules and regulations are associated with it, which might seem overwhelming initially. This article should guide you through, so keep on reading!

Categorisation of Section 80CCD of the Income Tax Act 

There are two subsections under Section 80CCD, and these were mainly introduced to help assesses get clarity regarding tax deductions available for them. Each subsection deals with certain aspects that you should clearly understand before filing ITR. Find all such information below:

1. Section 80CCD (1)

It comprises the regulations and norms related to deductions available for both self-employed and salaried individuals for their contributions toward NPS. Whether it is a government employee or a private employee who has made this contribution, the provision applies to all of them. 

However, there is an age range of 18-65 years. Every Indian citizen belonging to this age group, including NRIs, will be able to avail of tax benefits u/s 80CCD (1). 

An individual contributing to APY or NPS can claim tax deductions of up to Rs. 1,50,000 annually. After the introduction of a new amendment (Section 80CCD 1B) in 2015, a further additional deduction of up to Rs. 50,000 is available on the overall limit. 

2. Section 80CCD (2)

This one mainly deals with the aspects related to the contributions made by the employer to the NPS of an employee. The employer can make such contributions on top of the EPF and PPF contributions. Also, it can either be higher than what the employee is contributing or equal to that amount. 

Evidently, the provisions of Section 80CCD (2) apply to only salaried individuals. They can claim the deductions under this Section over the deductions of Section 80CCD (1). Also, under this particular provision, a salaried employee can claim up to 10% of his/her salary. This includes both the dearness allowance and basic pay. 

Before moving forward and making the most of the benefits of Section 80CCD of the Income Tax Act, 1961, check if you are eligible for it. 

Also read: Section 80D Of Income Tax Act

Eligibility Criteria to Meet for Claiming Deductions u/s 80CCD

Individuals need to meet the following parameters to be eligible for claiming tax deductions under Section 80CCD:

• All Indian citizens who have made any contribution towards APY or NPS can avail of tax benefits under this provision. In fact, NRIs are also eligible to claim deductions. 
• The age of the assessee should cross 18 years to be eligible to avail of tax benefits u/s 80CCD.
• Salaried individuals who got employed by the Government of India after January 1 2004 will be able to contribute up to 10% of their salary towards NPS. On the other hand, for individuals who are self-employed, this limit is 20% of their gross income (from FY 2017-18). 
• Individuals belonging to Hindu Undivided Family or HUF cannot claim deductions under this provision.

Terms and Conditions Related to Section 80CCD Deductions 

Before you go ahead and claim tax deductions under Section 80CCD Of the Income Tax Act, 1961, know about the terms regarding this provision mentioned below:

• Both self-employed and salaried individuals will get to avail of tax benefits under Section 80CCD. Even though it is a must for Government employees, it is voluntary for the rest of the citizens. 
• Under this tax provision, the maximum deduction limit remains Rs. 2 lakh, including an additional deduction of up to Rs. 50,000, applicable to every individual’s contribution toward NPS. 
• You can claim deductions under Section 80CCD for both Atal Pension Yojana and National Pension Scheme. However, if one makes a reinvestment in an annuity plan after receiving an amount from NPS, that particular amount will be exempted from tax deductions. 
• If you receive funds from NPS as monthly payments, it will be liable for taxation.

To claim deductions u/s 80CCD, you need to file ITR at the end of every FY. And, while doing so, you must present proof of the same. 

Note that in terms of APY contributions, the age limit is 60 years, and individuals can also opt for premature withdrawals under certain circumstances. The pension amount differs depending on how much you are contributing to APY. Also, the amount received per month remains taxable. 

Also read: Deductions Under Section 80C Of Income Tax

Final Word

Since Section 80CCD of Income Tax allows both salaried and self-employed individuals to claim tax deductions, it is necessary to mention this when filing IT returns. Also, make sure to specify whether your employer is making the contribution on behalf of you or you are making it for yourself. Submit the transaction statements mandatorily to help the IT Department expedite the entire process. 

Frequently Asked Questions 

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