Section 80ccd

Section 80CCD is a section from the Income Tax Act of 1961 that facilitates tax deductions to individuals for the contributions they make towards the National Pension Scheme (NPS) or the Atal Pension Yojana (APY). The contributions made by employers towards their employees in the NPS also come under Section 80CCD.

What Is The NPS?

The national pension system (NPS) is a voluntary retirement savings scheme designed to enable the individuals to financially secure their future by making systematic savings during their work period. NPS will develop financial discipline in the citizens and help them save for their retired life. It seeks to provide a solution for every citizen to sustain himself/herself through enough income in their retired years. Some of the details and features of the NPS scheme are as follows:

• Contributions made towards the NPS continue to accumulate in the fund till retirement and corpus growth continues via the returns earned on investments made into government bonds, bills, corporate debentures, and shares.
• Subscribers can opt to come out of the plan before retirement or they can choose superannuation. But in both cases, a part of the savings is used to provide the subscriber with retirement benefits.
• Thus, when subscribers retire, superannuate, or exit out of the plan, a minimum of 40% of the NPS corpus is utilized towards paying pension while the remaining amount is paid to the subscriber as a lump sum.
• NPS provides liquidity and flexibility via two different account types - Tier 1 account and Tier 2 account. The Tier 1 account is a pension account and withdrawals from it are done with respect to certain limitations. With the Tier 2 account, you can invest and withdraw money.
• When you open an account with the NPS scheme, a permanent retirement account number or PRAN is generated.

Who Are Pension Fund Managers?

There are about 7 pension fund managers in the country that manage the NPS scheme. They are

• Birla Sun Life Pension Management Limited.
• HDFC Pension Management Company Limited
• ICICI Prudential Pension Funds Management Company Limited
• Kotak Mahindra Pension Fund Limited
• LIC Pension Fund Limited
• Reliance Capital Pension Fund Limited
• SBI Pension Funds Private Limited
• UTI Retirement Solutions Limited

The responsibilities of the pension fund manager are as follows:

• They invest the collected funds into asset classes according to the Investment Objective And Guidelines of Authority and Investment Policy.
• The fund managers also do reviews in regular periods to make sure that the underlying assets are performing well.

What Is The Atal Pension Yojana (APY)?

Atal Pension Yojana (APY) is available to all bank account holders. It can be subscribed by any citizen of India within the age limit of 18 to 40 years. The subscribers would receive the specified minimum pension of Rs. 1000 per month.

What Are The Terms And Conditions For Deductions Under 80CCD?

The various terms and conditions governing the deductions under section 80CCD are:

• Section 80CCD enables deductions for both salaried as well as self-employed individuals.
• It is compulsory for government employees.
• It is an option given to other employees.
• The maximum deduction limit under 80CCD is capped at Rs. 2 Lakhs. This includes the provision for additional deduction under subsection 1B.
• Tax benefits claimed under Section 80CCD cannot be claimed again under Section 80C.
• The consolidated deduction under Section 80C and 80CCD cannot be more than 2 Lakhs.
• The monthly payments or the surrendered accounts obtained from NPS are liable for taxation as per the directives in the section.
• Any amount received from NPS, which is invested again in the annuity plan is eligible for a tax deduction.
• The deductions allowed under Section 80CCD can be availed at the time of filing your income tax returns. This will be towards the end of the financial year. You will be required to produce a proof for the contribution made.

What Are The Subsections Of 80CCD And Their Features?

Section 80CCD can be divided into further subsections-Section 80CCD(1) and Section 80CCD (2).

Section 80CCD (1) constitutes the rules and regulations related to income tax deductions allowed to individuals for the contributions made to the NPS. The following are the key features of 80CCD (1):

• It is regardless of the fact whether the additions have been made by the government, private, or self-employed individuals.
• The directives and provisions of the section apply to all the Indian citizens who are contributing to the NPS.
• The age of the Indian citizen should be between 18 and 65 years.
• This also applies to NRIs.
• The maximum deduction allowed under the section is 10% of the salary (basic + DA) or 10% of the gross income of the individual.
• From the financial year 2017 to 2018, this limit has been hiked for the self-employed individuals to 20% of the gross total income with the maximum limit at Rs. 1,50,000/- for a given financial year.
• The tax deduction limit has been increased to 14% on the employer’s contribution to the NPS account of the state government employees. It has been equalized with the central government employees.

Features Of Section 80CCD (2)

It deals with a tax benefit given to employers for the contribution they make to the pension scheme. If your employer contributes to the NPS account, he gets a tax deduction under Section 80CCD (2).

• The contributions towards NPS can be made by an employer in addition to those made towards PPF and EPF.
• This tax benefit is limited to 20% of the total income of the employer in the previous year.
• The contribution made by the employer can be the same or higher than the contribution made by the employee.
• Deductions under Section 80CCD (2) are allowed only to salaried individuals and not to self-employed individuals.
• Section 80CCD(2) allows salaried individuals to claim deductions up to 10% of their salary. This includes the basic pay and dearness allowance. Else, it is equal to the contributions made by the employer towards the NPS.

Sections 80CCD (1) and 80CCD (2) were introduced in 2004 after the introduction of the NPS.

Conclusion

Section 80CCD of the Income Tax Act allows you to enjoy a significant deduction on your taxable income. Always research through to understand the various changes in the taxation system.

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