Deductions under Section 80CCD of Income Tax - Complete Info

2. Types of Section 80CCD Deductions

Here are the following three types of deductions available under Section 80CCD: 

Section 80CCD (1)

1. Private, government or self-employed individuals contributing to NPS or APY scheme can claim tax deduction of Rs.1.5 lakh in a financial year under this subsection.
2. Private and government sector employees can claim 10% of their salary contribution, while self-employed individuals can claim 20% of their gross income.

Section 80CCD (1B)

If the contribution is made over the permitted amount as prescribed under Section 80CCD (1), then taxpayers can claim an additional Rs.50,000 under this sub-section.

Section 80CCD (2)

1. This section deals with the employer's contribution toward an employee’s NPS funds.
2. Employees can claim this amount as deductions u/s Section 80CCD (2).
3. The amount of deduction is limited to 10% of the salary and the dearness allowance for private sector employees. While the amount is 14% for government employees.

3. Benefits of Section 80CCD

The benefits of Section 80 CCD and its sub-sections are listed below:

The benefits of Section CCD fall under those of 80C, i.e., the deductions claimed u/s 80CCD cannot be claimed again in 80C. The overall limit of deductions under 80C, 80CCC and 80CCD is Rs.2 lakh, with an additional deduction of Rs.50,000 allowed u/s 80CCD sub section 1B.  

4. Section 80CCD Deductions under the New Tax Regime

5. Eligibility for Claiming Section 80CCD Deductions

The following are the eligibility criteria for claiming tax deductions under Section 80CCD: 

1. Any Indian resident contributing to NPS or APY 
2. Individual must be 18 years of age or above 
3. Any salaried individual can claim deductions 
4. Individual should not belong to Hindu Undivided Families (HUF) 

6. Documents Required for Claiming Tax Benefit under NPS

The documents required to invest in NPS are listed below:

1. Aadhaar card
2. PAN card
3. Bank statement

7. Is NPS Withdrawal Taxable under Section 80CCD?

Only 25% of the total amount contributed to the account is tax-free if there are partial withdrawals made from it while 40% of the total amount is exempt from tax if the assessee is an employee and chooses to cancel their NPS account. When the assessee turns 60 years old, they are entitled to a tax-free income withdrawal of 60% of the total amount. If the remaining 40% is invested in an annuity plan, it is also free of taxation.

There is a great chance for you to reduce your tax burden significantly through the benefit of Section 80CCD(1B). By doing this, you can lower your current tax liabilities while simultaneously working to build a significant retirement fund.

8. National Pension Scheme under Section 80CCD

National Pension Scheme (NPS)  is a retirement instrument eligible for tax deductions under Section 80CCD for any private-sector, public-sector, or self-employed individual above 18 years of age. Some of the key highlights of this scheme are as follows:

1. NPS is a market-linked financial instrument
2. The lock-in period is until the age of 60 years of the subscriber
3. Mandatory for Central Government employees and optional for others
4. Tax deductions of Rs.2 lakh is permitted
5. No tax is levied on 60% of the maturity amount which can be withdrawn. The remaining 40% amount must be invested in an annuity plan.
6. One must make a minimum contribution of Rs 6,000 per year, or Rs 500 per month, to be eligible for an income tax deduction under the NPS Tier 1 Account.
7.  One must deposit a minimum of Rs 2,000 annually, or Rs 250 per month, to be eligible for an income tax deduction under the NPS Tier 2 Account.
8. Subject to certain restrictions, individuals may withdraw portions of their contributions up to 25%.

1.  There are many other investment options available, including equity funds, government securities, and government bonds, among others.
2.  It is one of the most affordable equity-linked investing choices available.

Note: Remaining 40% of the maturity amount must be used for purchasing annuities.

9. Atal Pension Yojana under Section 80CCD

Pradhan Mantri Pension Yojana or Atal Pension Yojana also offers tax deductions under Section 80CCD to people from unorganised sectors between 18 years to 40 years.  Key highlights of this scheme are as follows:

1. Lock-in period is until the subscriber attains 60 years of age
2. Contribution up to Rs.1.5 lakh is eligible for tax deduction
3. Under certain circumstances, premature withdrawal permitted to the subscribers
4. Deduction can be claimed on APY contribution of 20% of annual income not more than Rs.1.5 lakh

1. Offers guaranteed pension ranging between Rs.1000 to Rs.5000, which will be taxable
2. Spouse in entitled to receive pension on death of the subscriber

1. Section 80CCD (1B) allows for a tax deduction for an additional investment up to Rs.50,000.
2. The spouse has the option to either continue the plan or withdraw the full corpus in the event of the investor's early death before the age of 60 years.

10. Conditions to Avail Section 80CCD Deductions

The following are the terms and conditions that should be remembered before claiming tax deductions under Section 80CCD:

1. Tax deductions applicable for private-sector employees, public-sector employees, and self-employed individuals
2. Applicable for NPS and APY contributions

1. Total deduction amount is Rs.2 lakh including Section 80C, 80CCC, 80CCD (1), and 80CCD (1B)
2. For self-contribution to NPS and APY, additional deduction of Rs.50,000 can be claimed
3. Deduction cannot be claimed under Section 80CCD (1B) or 80C, if already claimed under 80CCD (1)
4. The pension payment received after retirement from NPS or APY is taxable
5. Corpus received after maturity from NPS or APY is tax free

1. Individual can claim deduction under Section 80CCD while filling income tax returns
2.   The proceeds from the pension fund whenever released such as for monthly pension payment or surrendered accounts will be taxable under respective income tax brackets.

11. Points to Consider for Section 80CCD Deduction

Before claiming the Section 80CCD deduction, keep the following points in mind:

1. Section 80CCD (1) allows you to deduct up to Rs 1.5 lakh; however, the total amount of deductions allowed under Sections 80C, 80CCC, and 80CCD (1) must not be more than Rs.1.5 lakh. This implies that you can only deduct an additional Rs.50,000 under Sections 80CCD (1) and 80CCC if you have already claimed a Rs.1 lakh deduction under Section 80C.
2. If your employer makes contributions to your NPS account, you may be eligible to receive up to 10% of your income (Basic + Dearness Allowance). It is not subject to any upper limit.
3. When you invest in a Tier 1 account, you are eligible for an additional deduction of Rs.50,000 under Section 80CCD(1B).
4. The deduction allowed by Section 80CCD(1B) exceeds the total amount allowed by Sections 80C, 80CCC, and 80CCD (1), which is Rs.1.5 lakh.