What are the deductions for National Pension Scheme

What are the deductions for National Pension Scheme

Who is eligible for National Pension Scheme Contribution?

This deduction can be claimed by
• Employee of central government
• Employee of any other employer
• Self-employed individual.

Who can invest in NPS?

Any individual of 18years to 60years can contribute to NPS.

Nature of payment: -

The amount deposited or paid any amount in his account under a pension scheme notified by the central government.

Mode of payment:-

Payment must be made either in cash or Cheque’s.
Amount of deduction:
• For employees:
• Employees contribution: - To the extentof10% of the salary is deductible.
• Employers contribution: - To the extent of 10% of the salary is deductible.
• For Non- employees: -
• To the extent of 20% of Gross Total Income is eligible for deduction.

What is salary?

Salary for this purpose includes dearness allowance but excludes all other allowances and perquisites.

What if employer contributes more than 10% of salary?

Where the employer’s contribution is more than 10% of salary, such excess of employer’s contribution shall be ignored for the purpose of deduction.

Amendment to Sec.80CCD by the Finance Act 2015: -

Following amendments were made:
• The erstwhile limit of Rs. 1,00,000 in sec.80CCD towards employee’s contribution is omitted.
• Additional benefit up to Rs. 50,000 where the employee made contributions to NPS U/s 80CCD which won’t be included in the overall limit of Rs.1,50,000 as specified.
• This additional benefit 50,000 is over and above 1,50,000 under section 80C. Therefore, total deduction under 80C & 80CCD is 1,50,000 + 50,000.

Current legal position: -


1. The monetary limit is Rs. 1,50,000 in respect of aggregate deduction under sec 80C; 80CCC and 80CCD (1).
2. Stand Alone limits for 80C, 80CCC and 80CCD:
a. For 80C, standalone limit is 1,50,000.
b. For 80CCC, standalone limit is 1,50,000.
c. For 80CCD (1) employee’s contribution to NPS; 20% of GTI or 10% of salary for self-employed and salaried employees respectively.
3. A new section 80CCD (1B) has been inserted so as to provide for an additional deduction in respect of any amount paid up to Rs. 50,000 for contributions made any individual assessee under NPS. It is further provided that this contribution won’t be reckoned with in the overall limit of Rs. 1,50,000.
4. It may be noted that once deduction is claimed under section 80CCD(1B), then no deduction is available U/s 80CCD(1) with regard the same contribution.
Consequences in the case of closure of account: -
The amount standing to the credit of the assessee in the pension account, for which the deduction has been already claimed by him, and any accretions to such account, shall be taxed as income in the year in which such amounts are received by the assessee on closure of the account or his opting out of the said scheme.
With effect from 2017-18; if such amount is received on closure of account due to death of person, then such amount is exempted.

Conclusion: -
Any amount received from fund created under Sec. 80CCD is taxable under the head “income from salaries”. Deduction under this can be claimed by only individuals. HUF’s are not eligible to claim deduction under this section.