NPS Tax Benefit u/s 80CCD(1), 80CCD(2) and 80CCD(1B)

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• I think NPS is only for those below 60 years age. Can we take (age >65 years) this additional tax advantage? Is it worth it?

  • NPS is only available for person below 60 years of age.

• Hello,
  I am a central govt. employee. Through compulsory deduction of NPS in financial year 2015-16, my (employee) contribution was approx. 48000. Apart from that, in that financial year, I invested 1.5lakh in PPF. Am I eligible for the tax exemption for the 48000 that got invested in NPS? Or is the extra 50000 limit only for Tier 2 contribution in NPS?

  • The additional exemption is only for NPS Tier 1 account only. You are eligible to claim that tax benefit.

• Deduction u/s 80c (without including 80CCD(1) is Rs. 1,20,000/-, Nps deducted is Rs. 54500, shall i claim Rs. 30,000 in 80CCD(1) and balance 24,500/- in 80CCD(1B)??

  • You should claim Rs 50,000 u/s 80CCD(1) and Rs 4,000 in 80C. You can invest more in different instrument to get benefit u/s 80C.

    • Amit reply does not seem to be correct. Aman can claim 30,000 u/s 80CCD(1) and balance 24,500 u/s 80CCD(1B), as stated by Aman.

• MR. AMIT I AM A STATE GOVERNMENT SERVANT ,KINDLY GUIDE ME ABOUT SECTION 80CCD-2 .THE CONTRIBUTION GIVE BY STATE GOVERNMENT IS OUT OF 150000/= LIMIT ? AND TO GET THE BENEFITS OF THESE SECTION IT IS NECESSARY TO ADD THE GOVERNMENTS CONTRIBUTION IN GROSS INCOME ?

  • The contribution by state government in NPS is not considered u/s 80C limit. You need to add the government contribution in gross income but the same would be 100% tax deductible u/s 80CCD(2), which means the contribution by state government is tax free.

• l m in govt job.My nps contribution (10%of basic and da)is104631 Including nps arrear.other component under80c is 75760.Total under 80c is 180391.I joined after 2004.how can i take max tax benefit.i hv nps ac.do i need to open another nps ac?

  • You just need 1 NPS account and contribute in the same.

    You would get 50,000 tax exemption u/s 80CCD(1B) for investment in NPS. Also Rs 54,631 in NPS and Rs 75,760 would be eligible for tax benefit u/s 80C. You can invest additional 20,000 in desired instrument eligible for tax exemption u/s 80C.

• my gross salary is 507429. I m state govt employee. i HAVE INVESTED IN PPF 150000. My own cpf deduction is rs.46459. can i show cpf deduction in sec.80ccd (1b). can i deduct my cpf amount from gross salary? what will be my tax ? i m 40 yr old.

  • NPS for government employees are considered as CPF (Contributory Provident Fund). So you can get deduction up to Rs 50,000 u/s 80CCD(1B) for your own contribution. No you cannot deduct it from your gross salary.

• Can a state govt. employee who is covered under state govt. pension system open a NPS Tier 1 account to avail additional tax rebate of Rs.50000/- under section 80 CCD(1B).Please crarrify

  • Yes you can open NPS Tier 1 to take tax benefit.

• Tax treatment of NPS.
  • Total Deduction under Section 80C (Your PF, VPF, PPF, LIC ELSS etc.), is 1,50,000
  • NPS Deduction under Section 80 CCD(1B) ~ maximum cap is 50,000, you need to invest separately irrespective of what is deducted from your salary by your company
  • NPS Employer's contribution under section 80CCD(2) is outside the monetary ceiling mentioned above (2,00,000)
  * If you are already covered with PF, PPF, LIC & ELLS for 80C deductions, they you may need to just invest 50,000 to claim 80CCD(1B) benefit.

  With the above, NPS deduction proposed from next financial year is outside the monetary ceiling of 80C, 80CCD(1) and 80 CCD(1B) as this deduction is considered as Employer's contribution . Therefore an employee can avail maximum Tax deductions of 3,00,000 with introduction of NPS with following scenario for a basic salary of 10,00,000

  Benefit Illustration
  • Basic annual salary = 10,00,000
  • 80 C Deduction including 80CCD (1) = 1,50,000
  • 80 CCD(1B) = 50,000
  • 80CCD(2) …10% of basic = 1,00,000.
  Total Tax deduction = 80 C+ 80 CCD(1B) + 80CCD(2) = 3,00,000

  • Thanks Karthik for the NPS Benefit illustration. Employees own contribution is eligible for tax deduction under sec 80CCD(1) of Income Tax Act up to 10% of salary (Basic + DA). So in illustration the maximum benefit would be Rs 1 lakh u/s 80CCD(1).

• hello mr. amit i think there is misunderstanding regarding sec. 80 ccd(1B)

  as per income tax law. the employee deduction towards NPS fund will fall u/s 80ccd1 and it will be 10% of salary (basic + DA for central govt. employee). this 10% amount will constitute with other component of 80C i.e it will remain included in 1.5 lakh.

  if you want advantage of sec 80 ccd (1b) you have to enhance your contribution in NPS tier 1 account which facility is started from FY 2015-16. as per definition of this section this eligible amount is otherthan employee contribution of 10% of salary.

  • My understanding about this is mainly from the fact that there is no compulsion on employee/employer to have equal contribution as in case of EPF. So if employee wants to take tax advantage of NPS u/s 80CCD(1B) he can stop his contribution through employer and do on his own. This is for organizations which give flexibility for salary structuring and may not applicable to government employees. So why differentiate on where the contribution is coming from!

    I have also read in publications about the flexibility of choosing CCD(1) or CCD(1B) lies with the investor. But as we all know there might not be clear guidelines from I-T Department and everyone is having their own opinion.

    Could you please quote your source of information? I really want to be correct on this as a lot of readers use this opinion.

    • As per section 80CCD(1B), an assessee referred to in 80CCD(1) shall be allowed an deduction in computation of his income, of the whole of the amount paid or deposited in the previous year in his account under the pension scheme notified or as may be notified by the Central Government, which shall not exceed Rs. 50,000. The deduction of Rs. 50,000 shall be allowed whether or not any deduction is allowed under sub-section(1). However, the same amount cannot be claimed both under sub-section (1) and sub-section (1B) of section 80CCD.

      From the above it is clear that any amount deposited by the employee can be first taken under 1B, limited to Rs 50,000. There is no cmpulsion to include u/s 80C., though it is mandatory for Govt employee to contribute 10% to NPS.