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Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
Section 80CCD(1) and Section 80CCD(2) help individuals claim deductions on contributions to their retirement plans and permit employers to avail deductions for contributions made on behalf of employees, enhancing tax benefits for both parties.
Income tax laws in India provide various methods for taxpayers to save money through deductions and exemptions.
Section 80CCD of the Income Tax Act, 1961, is one such provision that offers tax benefits related to contributions made towards the National Pension System (NPS).
Section 80CCD(1) deals with the deduction available for individual taxpayers’ contributions towards their own NPS account. This includes contributions made by the taxpayer, whether salaried or self-employed, towards their Tier-I NPS account.
Section 80CCD(1) of the Income Tax Act, 1961 is a significant provision allowing taxpayers to save on taxes. Its benefits are as follows:
As per the current provisions, individuals can claim a deduction of up to 10% of their salary (for salaried individuals) or 20% of their gross total income (for self-employed individuals) under Section 80CCD(1).
The deduction under Section 80CCD(1) is within the overall limit of ₹1.5 lakhs available under Section 80CCE, which includes various other deductions like Section 80C, 80CCC, etc.
Self-employed individuals can benefit from a higher deduction of 20% of their gross total income, providing them with an increased scope for tax savings.
Taxpayers can also make voluntary contributions beyond the mandatory contribution towards NPS, increasing their tax benefits.
Section 80CCD(2) pertains to the deduction available for employer contributions to an employee’s NPS account. This applies to salaried and self-employed individuals who employ others and contribute to their employees’ NPS accounts.
Section 80CCD(2) is a crucial component of this framework, providing tax benefits to employees and employers. Some of the features and benefits are as follows:
Employers contributing to their employees’ NPS accounts can claim a deduction under Section 80CCD(2). The deduction is available for up to 10% of the employee’s salary, which includes basic salary and dearness allowance.
Unlike Section 80CCD(1), no monetary limit is prescribed for the deduction under Section 80CCD(2). Employers can claim the entire employer contribution as a deduction.
The employee does not need to contribute to their NPS account to avail the benefit under Section 80CCD(2). However, the deduction claimed by the employer is part of the overall limit of ₹1.5 lakhs available under Section 80CCE.
The tax benefits available that are made to the central government pension schemes are as follows:
Sections of IT Act, 1961 |
Tax Deduction |
Details Tax Benefits |
Section 80CCD (1) |
Contributions by employee/ self-employed individuals to their NPS/Atal Pension Yojana accounts |
Up to 10% of salary (basic+ DA) OR Up to 20% of salary (basic+ DA) |
Section 80CCD (2) |
Contributions made by the employer to the NPS accounts of their employee |
Up to 10% of salary (basic+ DA) for private-sector employees OR Up to 14% of salary (basic+ DA) for government employees |
Section 80CCD (1B) |
Self-contributions by an individual to their NPS/ Atal Pension Yojana account |
Up to ₹50,000 |
Section 80C |
Investments made into tax-saving instruments |
Up to ₹1.5 lakhs |
Section 80CCC |
Investments made into retirement plans |
Up to ₹1.5 lakhs |
Taxpayers can optimize their tax planning and secure their financial future by fulfilling the specified conditions.
Understanding the nuances of Section 80CCD(1) and 80CCD(2) is crucial for individuals looking to optimize their tax planning through the National Pension System. While Section 80CCD(1) focuses on individual contributions to their NPS account, Section 80CCD(2) highlights the employer’s role in facilitating employee tax benefits. By leveraging these provisions, taxpayers can save on taxes and secure their financial future through contributions to the NPS. It is advisable to consult with a tax professional to ensure proper compliance with tax laws and to make informed decisions based on individual financial situations.
Pay 10,000/month for 10 years, Get 1,65,805/Year* for next 15 years.
ARN. No. KLI/23-24/E-BB/1201
Features
Ref. No. KLI/22-23/E-BB/999
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