Deductions under Section 80 CCD – NPS

Section 80 CCD of IT Act,1961  provides for deduction in respect of contributions made by 

1.    an employee  and /or
2.    employer 

to the New Pension Scheme (NPS) during a Financial Year, as follows:

a.    Employer’s contribution towards NPS is taxable in the hands of employee as part of salary income. Entire contribution made by the employer is to be included in the salary income of the employee in the year of contribution.
b.    Under Section 80 CCD (1), Employee’s contribution towards NPS is deductible up to a maximum of 10 % of Salary , and the aggregate deduction u/s 80C, 80 CCC and 80CCD (1) shall not  exceed Rs.1, 50,000/- 
c.    Under Section 80 CCD (2) Employer’s contribution towards NPS (equivalent to 10% of Salary) is deductible and the same is over and above the limit of  Rs.1,50,000/- under section 80CCE 
d.    The new sub-section (1B) inserted in section 80CCD [80 CCD (1B)], provides for an additional deduction in respect of any amount paid by an individual assessee under the New Pension Scheme. The maximum amount eligible for deduction is Rs. 50,000. This contribution is over and above the Rs. 1,50,000/- ceiling. 

Salary for the above purpose means sum of Basic Pay and Dearness Allowance only. 

How can an employee take maximum benefit of contribution towards NPS, u/s  80 CCD (1B)?

Those employees coming under New Pension Scheme may account the amount deducted as contribution to NPS under section 80 CCD (1B). The amount over and above Rs.50,000/-, (the maximum permissible ceiling under section 80 CCD(1B)), if any, can then be accounted under section 80 CCD(1) subject to a maximum of 10 % of salary and an overall eligible limit of 1,50,000/- under section 80CCE. Thus an employee can take maximum benefit of the 80CCD (1B)

The table given below highlights the amendments made to sections 80CCC and 80CCD