Deduction in respect of contribution to pension scheme of Central Government [Section 80CCD] :
(i) As per the “New Restructured Defined Contribution Pension System” applicable to new entrants to Government service, it is mandatory for persons entering the service of the Central Government on or after 1st January, 2004, to contribute ten per cent their of salary every month towards their pension account. A matching contribution is required to be made by the Government to the said account. The benefit of this scheme is also available to individuals employed by any other employer as well as to self-employed individuals.
(ii) Section 80CCD provides deduction in respect of contribution made to the new pension scheme of the Central Government,
(iii) Section 80CCD(1) provides a deduction for the amount paid or deposited by an employee in his pension account subject to a maximum of 10% of his salary. The deduction in the case of a self-employed individual would be restricted to 10% of his gross total income in the previous year.
(iv) New sub-section (1B) has been inserted in section 80CCD to provide for an additional deduction of up to Rs 50,000 in respect of the whole of the amount paid or deposited by an individual assessee under NPS in the previous year, whether or not any deduction is allowed under section 80CCD(1).
(v) Whereas the deduction under section 80CCD(1) is subject to the overall limit of Rs 1.50 lakh under section 80CCE, the deduction of upto Rs 50,000 under section 80CCD(1B) is in addition to the overall limit of Rs 1.50 lakh provided under section 80CCE.
(vi) Under section 80CCD(2), contribution made by the Central Government or any other employer in the previous year to the said account of an employee, is allowed as a deduction in computation of the total income of the assessee.
(vii) The entire employer‘s contribution would be included in the salary of the employee. However, deduction under section 80CCD(2) would be restricted to 10% of salary
| Note: The limit of Rs 1,50,000 under section 80CCE does not apply to employer’s contribution to pension scheme of Central Government which is allowable as deduction under section 80CCD(2). |
(viii) Further, the amount standing to the credit of the assessee in the pension account (for which deduction has already been claimed by him under this section) and accretions to such account, shall be taxed as income in the year in which such amounts are received by the assessee or his nominee on –
(a) closure of the account or
(b) his opting out of the said scheme or
(c) receipt of pension from the annuity plan purchased or taken on such closure or opting out.
(ix) However, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.
(x) No deduction will be allowed under section 80C in respect of amounts paid or deposited by the assessee, for which deduction has been allowed under section 80CCD(1).