In last few weeks I have got several mails and comments asking about the tax benefit on NPS. This post explains the tax deduction availa/ble for NPS under 3 sections: 80CCD(1), 80CCD(2) and 80CCD(1B).
Tax Benefit on NPS Tier 1 and/or 2?
NPS has two Tiers – 1 and 2.
NPS Tier 1 is the long term investment, which has restricted withdrawals and meant primarily for retirement planning. On maturity, you can withdraw maximum of 60% of corpus as lumpsum and rest has to be used for annuity purchase.
NPS Tier 2 is for managing short to medium term investment. You can invest and withdraw anytime as per your wish. This is an optional feature and you are asked if you need Tier 2 account while opening NPS.
All the tax benefit related to NPS is available to investment in NPS Tier 1 account only.
Also Read: When and How can Tax Benefits Claimed Earlier be Reversed?
NPS Tax Benefits:
NPS tax benefits are available through 3 sections – 80CCD(1), 80CCD(2) and 80CCD(1B). We discuss each below:
1. Section 80CCD(1)
Employee contribution up to 10% of basic salary and dearness allowance (DA) up to 1.5 lakh is eligible for tax deduction. [This contribution along with Sec 80C has 1.5 Lakh investment limit for tax deduction]. Self employed can also claim this tax benefit. However the limit is 10% of their annual income up to maximum of Rs 1.5 Lakhs.
2. Section 80CCD(1B)
Additional exemption up to Rs 50,000 in NPS is eligible for income tax deduction. This was introduced in Budget 2015.
Also Read: Should You invest in NPS to take tax benefit u/s 80CCD(1B)
3. Section 80CCD(2)
Employer’s contribution up to 10% of basic plus DA is eligible for deduction under this section above the Rs 1.5 lakh limit in Sec 80CCD(1). This is also beneficial for employer as it can claim tax benefit for its contribution by showing it as business expense in the profit and loss account. Self employed cannot claim this tax benefit.
Below is the illustration on how introducing NPS can help you save tax under Section 80CCD(2).
Tax Benefit for Compulsory NPS deduction:
The earlier pension structure was replaced by NPS in most central and state government jobs since 2004. So anyone who joined after that has compulsory deduction for NPS. The deduction is 10% of basic salary and dearness allowance (DA) and the employer too contributes the matching amount. The confusion for most employees is how they take tax benefit on their compulsory NPS deduction?
Here is an example:
Amit is a government employee and his employer deducts Rs 62,000 per annum (which is 10% of basic + DA) from salary as employee’s contribution in NPS. It also deposits Rs 62,000 per annum as employer’s contribution in NPS. How and under which section should he claim tax benefit on NPS?
Let’s take the easy part first. Employee’s contribution in NPS would be eligible for tax deduction u/s 80CCD(1).
The employee has a choice as to which section [80CCD(1) or 80CCD(1B)] he wants to show his contribution. Ideally he should show Rs 50,000 investment in NPS u/s 80CCD(1B). The tax deduction on rest Rs 12,000 can be claimed u/s 80CCD(1). The section 80CCD(1) along with Section 80C has investment limit eligible for tax deduction as Rs 1.5 lakhs. So he should make additional investment of Rs 1,38,000 in Section 80C to save maximum tax. In all he can save Rs 2 lakhs tax u/s 80C and 80CCD(1B).
I hope this would have cleared the confusion on how NPS helps you save tax.
I have invested 150000 in ppf which Ihv shown in form 16 under section 80 c for tax deduction. My employer contribution in NPS is 54000 and my own share is also 54000.In form 16 , 50000 amount shown on ccd 1B .can I change this amount from 80 ccd 1B to section 80 ccd 2?
Your own contribution can be either 80CCD(1) or80CCD(1B) but employer contribution is always 80CCD(2). No flexibility here!
DEAR SIR,
My form 16 is showing deduction under section 80CCD of rs 39818. This is eligible under section 80CCD 2 or not
If this is employer contribution it would be eligible u/s 80CCD(2). If its your contribution it would go in 80CCD(1) or 80CCD(1B)
i am a govt employee. i have invested Rs. 1,01,120 under section 80c and Rs.58642 is deducted under 80ccd (i) as employee contribution and same amount .i.e. Rs.58,642 is deducted under Section 80ccd(ii) as employers contribution. Also Rs 4225 under section 80D (cghs). Sir, pls tell whether i can get the benefit of section 80ccd1b or not? Also what is my taxable income aftergetting tax rebate if my gross income is Rs. 697367.
You can claim your NPS contribution of Rs 58,642 u/s 80CCD(1) or 80CCD(1B). If you consider 50K in 80CCD(1B) you get additional tax saving by investing in 80C sections – total up to Rs 2 lakhs.
As employer contribution is concerned its not shown in Form 16 and you have to do nothing about it – as its anyway tax free.
Amit Ji,
Please check whether section 80 CCD (1B) is eligible for compulsory employee contribution or not. since in NPS CRA website, certificate for Section 80CCD(1B) is generated for voluntary contribution by employee and not as part of compulsory employee contribution.
your website is saying that employee contribution is eligible. I have a different view based on CRA-NPS website certificate.
thanks
Yes there are different school of thoughts on the same. We support the view which says employee have flexibility with their NPS contribution u/s 80CCD(1) or 80CCD(1B)
HELLO SIR
I WANT TO KNOW THE LIMIT OF SAVING
80 CCD1 1,50,000 PST OFFICE
80CCD2 EMPLOYER CONTRIBUTION LIMIT 35,000 TIER 1
80CCD (IB) 50,000 TIER 2
AND ALS0 BY NPS DEDUCTABLE 70,000 NPS
2,50,000
you can have max deduction of Rs 2 lakh for your own contribution to the fund – 1.5 lakh u/s 80CCD(1) and 50,000 u/s 80CCD(1B). The employer contribution is over and above this limit which is not shown in Form 16
I am a Govt. servent. My employer contribution in NPS is 47961 and my contribution is 47961 ( total rs 95922) but in Form 16 only amount 47961 has been shown under 80CCD. Can I claim both the amounts under 80CCD(1) and 80CCD (2) respectively?
Form 16 only shows employee contribution. So you need not worry about employer contribution as its not shown in Form 16 and so no tax has been paid on the same making it tax free.
This is the right way!
Whether it is necessary or not that govt contribution of rs. 47961 is taken into income or not in this case
Government contribution is not required to be added to income. Follow your form 16 for filing returns!
मैं एक सरकारी कर्मचारी हूँ। क्या 80ccd( 1) & 80ccd(2) दोनो को जोडक़र रिटर्न filing में लाभ लिया जा सकता है? 80ccd(2) के बारे में पूरी तरह संदेह का निराकरण करें।
Tax exemption under 80CCD(2) is available only for employer contribution. Take exemption if this has been added to your income in Form 16.
Sir plz tell me are 80ccd2 and 80cce same.if not tell me different between its
Sir, I am bank employee. i have mandatory employee contribution of rs 30000. I have invested 150000 in ppf. Can i show nps contribution in 80ccd 1b resulting total deduction of 180000? Can you please provide any clause and circular regarding employee has right to choose between 80c and 80ccd1b for their mandatory contribution nps if employee has fully invested in 80c? I want to guide my friends who aren’t doing so.
Yes you can take employee contribution of NPS as 80CCD(1B) up to Rs 50,000. I do not have any official document for the same but its opinion majority of tax experts hold. However there are also experts who believe otherwise!
I am a government employee. My saving in 80c is 150000. My employer contribution is 60000.And my contribution is 60000. I show employer contribution in 80ccd (2). Can I show my contribution 50000 in 80ccd(1b)and rest 10000 in 80ccd(1)
yes you can
Amit,
I have my 1.5L limit exhausted already under 80C.
I m planning to take 50K NPS using 80 CCD(1B) by opening PRAN.
Currently, I found that my company can let my 10% of basic with 80 CCD(2), say this is 35K
[1] If i subscribe for my company 80CCD(2) as well, Do I get tax exemption for 1.5L + 50K + 35K = 2.35L, right?
[2] If I switch company or start my own business, say after 4-5 years, I will not be able to continue 80 CCD(2) as I don’t have employer or my future employer might not pay. What is it’s situation? What will happen to paid amount?
[3] Is NPS under all these sections EEE or EET?
1. Yes you’ll get 1.5L + 50K (own contribution in NPS) + 35K (employer contribution)
2. The paid amount would remain invested in NPS till your withdraw
3. NPS is EET
For more details about NPS you can check this.
5.I read employer invested amount cannot be withdrawn. So do I need to keep it till 60 years?
6.Is it okay – if there is break or pause in employer contribution after some time – as I heard that one needs to invest every year into NPS ?
7. If I m opening, I ll fall under individual or corporate subscriber? (taking case of investing via employer)
I invested 150,000/- under 80c. I also invested 10,000/- in NPS Tier 1. Can I show 10,000/- under 80ccd(1B)?
yes
Amit,
I have my 1.5L limit exhausted already under 80C.
I m planning to take 50K NPS using 80 CCD(1B) by opening PRAN.
Currently, I found that my company can let my 10% of basic with 80 CCD(2), say this is 35K
[1] If i subscribe for my company 80CCD(2) as well, Do I get tax exemption for 1.5L + 50K + 35K = 2.35L, right?
[2] If I switch company or start my own business, say after 4-5 years, I will not be able to continue 80 CCD(2) as I don’t have employer or my future employer might not pay. What is it’s situation? What will happen to paid amount?
[3] Is NPS under all these sections EEE or EET?
[4] Should I open PRAN first myself and share it with employer or it’s okay which ever happens first …in regards with 80 CCD(2) and 80CCD(1B) ?
4> Either ways you can open and pass on the PRAN details to employer or vice versa. I would recommend you to consult your employer before opening NPS – to know the exact practice followed by them.
Respected Sir,
Section 80CCD(2) of income tax describes about NPS contribution made by the employer and me as an employee can claim tax exemption under this section.
But as this employer contribution is not taken as part of salary can I claim this exemption directly under section 80CCD(2) or I should add the employer contribution to gross salary and then claim the exemption under section 80CCD(2). Please clarify should i add employer contribution to gross salary and then claim this exemption.
Ignore 80CCD(2) from your tax returns as its not reflected in Form 16 anyway
Sir… If in same condition… My employer has added nps contribution in 16a form… Then… The total deductions becomes more thn 2 lacs..( savings 125000, nps 43612 by me nd same also by employer.. Can it will be possible…
Then you can show employer contribution exempt u/s 80CCD(2)
Hello,
I have recently started NPS under Tier 1 category through corporate. Annual contribution is Rs 37800 which appears under 80CCD(2)/1(b) in my salary slip and as Employers Contribution in NPS Transaction Statement under CRA NSDL site. So this Rs 37800 considered for tax benefit. My 80C limit of 1.5 lakhs is fully utilized.
Wanted to check that can I contribute further up to Rs 50000 and claim for tax benefit addition to above given. If yes then how I need contribute and how to apply for the tax benefit.
Please let me if any other details required.
Thanks,
Yes you can contribute as much as you want. Just login to your NPS account and follow the instructions for contribution. Its easy.
Sir,
Now, I understand how to take tax benefit from NPS, but i missed to take this benefit in last ITR i.e. AY2016-17 and didn’t indicated additional NPS amount in 80CCD(1B). Can i re-file ITR to get the refund?
Yes you can file rectification request if your ITR is not processed yet!
ITR has been processed & refund is also accounted.
In that case you cannot do much. If you really want to proceed you will need to talk to your income tax assessment officer… which might be complicated!
Sir
I am private sector employees and my PF deduction come under EPF, can my employer give me contribution in my EPF (equal amount of my contribution ) and also in NPS under Section 80 CCD (2) 10% of my Basis & DA, can I claim more than limit of 80 C (1.5 lac) plus 80CCD (1B) 50000.
Nitin Patel
Yes your employer can contribute in both EPF & NPS. For 80cCD(1B) the contribution need not necessarily come from employer and you can yourself contribute upto Rs 50K
All deduction for the head of 80ccd2 , which reduces you taxable salary are being added back to your salary as perqusite. net- net there is no tax benefits? … why there is so much hype tax benefit of NPS. or Am i missing something.
Deduction u/s 80CCD(2) is not added as perk. Please recheck your Form 16