Section 80CCD of Income Tax Act

• Employee's own contribution [Section 80CCD(1)]

Similar to the case of Provident Fund where employees contribute their portion of income to EPF (Employee Provident Fund), in the same way employees may also wish to contribute to National Pension Scheme. Their amount of contribution is deducted from their salary for deposit in to their account at National Pension Scheme.

Considering the above case, the amount of deduction allowed under section 80CCD(1) will be the lower of the following:

1. Actual amount contributed by the Employee to National Pension Scheme, Or
2. 10% of the Basic Salary and Dearness Allowance

The limit is further restricted by the provision that the sum total of deduction which can be claimed under section 80C, 80CCC and 80CCD(1) cannot exceed Rs. 1,50,000. In simple words, an individual can claim the benefit of deductions provided under section 80C (Specified Investments), 80CCC (Pension Scheme) and 80CCD(1) (Own Contribution to National Pension Fund) but with an overall limit of Rs. 1,50,000 i.e. even if an individual has made any eligible deduction or deposit, he/she will not be able to claim any deduction above Rs. 1,50,000. Budget 2015 has amended the section 80CCD(1) and has given relaxation to some extent to those individuals who make deposit in National Pension Fund by giving extra benefit of Rs. 50,000 above the limit of Rs. 1,50,000.

For instance, If Mr. OM has deposited Rs. 60,000 in PPF, 45,000 in Pension Scheme specified u/s 80CCC and contributes Rs. 1,10,000 in National Pension Fund, he would be eligible for total deduction of Rs. 1,50,000 although his total investment was Rs. 2,15,000. This was the situation until F.Y. 2014-15. W.e.f F.Y. 2015-16 Mr. OM will be allowed to claim deduction of Rs. 2,00,000.

• Employer’s Contribution [Section 80CCD(2)]

Clause (2) of Section 80CCD allows an employee to claim deduction of the contribution made by the employer to the National Pension Fund. The main attraction of this section is that there is no monetary limit on the amount of deduction. However, the deduction must not exceed 10% of the employee’s salary.

For those who are Self-Employed or Non-Salaried persons, the amount of deduction allowed under the section 80CCD is lower of the following:

• Actual amount of contribution to National Pension Scheme, Or
• 10% of the Gross Total Income

The limit is further restricted by the provision that the sum total of deduction which can be claimed under section 80C, 80CCC and 80CCD(1) cannot exceed Rs. 1,50,000. But If the sum total limit exceeds Rs.1.5 Lakhs due to the contribution to National Pension Scheme, the Assesse will be additionally allowed for a deduction of Rs. 50,000 by making the overall total limit (i.e. sum total of 80C, 80CCC and 80CCD(1)) to Rs. 2,00,000.

Example

Let’s consider that A’s salary is Rs. 17,00,000 during the Financial Year 2015-16. A has paid Rs. 1,20,000 towards LIC and Rs. 2,00,000 as a contribution to NPS. The Employer contribution to NPS is Rs. 2, 50,000. In this case, the eligible amount of deduction u/s 80CCD is lower of the following:

1. Amount of Employee’s contribution - Rs. 2,00,000
2. 10% of 17,00,000 (Basic Salary) – Rs 1,70,000

From the above cases, the lower is Rs. 1,70,000. Since the total of 80C (LIC of Rs. 1,20,000) and 80CCD (Rs. 1,70,000 as determined above) is Rs. 2,90,000 it will be restricted to Rs. 2,00,000 for Financial Year, 2015-16.