Articles 1943 views September 23, 2020

Section 80CCD of the Income Tax Act 1961

It is the duty of every earning citizen of India to pay taxes on their annual income. But on the other hand, the Income Tax Act 1961 also provides some relief on taxation. It gives deductions on your taxable income. So, if you have made an investment then you can claim it for deductions as per the tax rules. Section 80CCD of the Income Tax Act 1961 allows deductions against the investments you have made in National Pension Scheme and Atal Pension Yojana. So, you must explore the terms and conditions of the deduction and see how it helps you to save some extra taxes.


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Meaning of Section 80CCD of Income Tax

Section 80CCD helps you to enjoy deductions against the investment made in the National Pension Scheme and Atal Pension Yojana. As per the Central Government, you are allowed to take deductions with the help of this section, and all the contributions made by you in these pension plans are also covered in this section.

Types of Section 80CCD

There are two subsections of Section 80CCD and you can explore all the details of them below:-

Section 80CCD (1)

  1. 10% of the Salary (Gross +DA) or 10% of the gross income of the individual is the maximum deduction permissible under this section.
  2. In the financial year 2017-2018, this limit was increased to 20% of the Gross Total Income with a maximum limit of INR 1.5 Lac for the self-employed individuals.

In the union budget of 2015, a new sub-section was introduced known as Section 80CCD (1B) in which you can claim an additional deduction of INR 50000. This deduction is allowed to both salaried and self-employed individuals. Therefore the maximum deduction capped in Section 80CCD of the Income Tax Act 1961 is Rs. 200000.

Section 80CCD (2)

This section applies only to the salaried individuals in which the employer has to make a contribution to the NPS. It allows the salaried individuals to enjoy deductions of 10% of their salary and the salary will be basic pay + dearness allowance or is equal to the contribution made by the employer in NPS.

Terms and Conditions of Section 80CCD of the Income Tax Act 1961

  1. This deduction is available for both salaried and self-employed individuals.
  2. Rs.200000 is the maximum deduction allowed in this section and it includes the additional deduction of Rs.50000.
  3. The combined deduction of Section 80C and Section 80CCD cannot exceed the limit of Rs.200000.
  4. The payouts received under the National Pension Scheme monthly or lump-sum will be liable for taxation.
  5. Amount received from NPS and reinvested in the annuity plan is completely exempted as per the tax laws.

How to Claim for Deductions under Section 80CCD

You can claim the deductions under Section 80CCD at the time of filing your income tax returns when the financial year ends. You will have to show all the supporting documents to claim the deductions. The supporting documents will the investment receipts or proofs that you are contributing to the National Pension Scheme.

National Pension Plan

This plan was introduced by the government so that an individual can accumulate funds for his future. It can be taken by any citizen of India whether he is working in a private sector or public sector. Even self-employed individuals can take this pension plan. The basic purpose of this plan is to help individuals to live a happy life even after their retirement. You must explore the various details of the National Pension Scheme:-

  1. You have to contribute to this plan until the age of 60 years.
  2. If you want to enjoy tax deduction under Section 80CCD and NPS Tier 1 then you must contribute at least Rs.6000 per annum or Rs.500 per month.
  3. In order to get the deductions under Section 80CDD and NPS Tier 2, you must contribute at least Rs.2000 per annum or Rs.250 per month.
  4. You are free to choose the investment in various options like Government Bonds, Equity Funds, Government Securities, and many more.
  5. In case of an emergency, you are allowed to make a partial withdraw of 25% of the investment depending upon certain terms and conditions.
  6. You can withdraw up to 60% of the corpus as lump-sum and have to invest 40% in the annuity plans.
  7. This plan will be cheaper for you if you are ready to take market risks.

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