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Yogi Zone

Useful articles for your finance management by our team of experts

Income tax deduction through Sections 80CCD (1) and 80CCD (2) of NPS

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80 CCD(2)Well, NPS has been a highly discussed topic right from its launch. Its availability, returns, charges, fund managers and many more things have formed part of heated discussion in the personal finance space. NPS is a great investment vehicle, especially for retirement. However, let’s restrict this discussion to only the tax benefits that NPS offers to its subscribers.

NPS offers tax deduction in the form of two sections – 80CCD (1) and 80CCD (2). We will be discussing on what these sections are, how much deduction they offer and what the conditions for eligibility are.

Section 80CCD (1)

What is it?

You can claim tax deduction on your own contribution towards the NPS scheme under section 80CCD (1).

Deduction limit

The maximum deduction available under this section would be Rs.1 lakh. This is part of the limit available under section 80C.

Conditions

You can avail this deduction only if you have invested in the Tier-1 account of NPS.

Section 80CCD (2)

What is it?

You can claim tax deduction on the employer’s contribution towards the NPS scheme as per section 80CCD (2).

Deduction limit

Employer can contribute up to 10% of (basic + da) under section 80CCD (2). Also, this deduction will not be part of the Rs. 1 lakh limit under section 80C. Apart from the above said 10% contribution, there is no such maximum deduction limit.

Conditions

Employer should contribute to your NPS account for you to be able to claim deduction of up to 10%. Not all employers currently contribute to NPS. You may have to speak to your employer once on this. Self employed persons cannot avail the benefit of this section as they only have self contribution.

Tax benefits of NPS at the time of retirement

The NPS amount received at the time of retirement is totally exempt from tax. However, you can only withdraw up to 60% of the corpus left at the time of retirement. The other 40% should be used to buy an annuity. Tax benefits will also be available if you withdraw this 60% of corpus in installments. You need to withdraw minimum of 10% balance every year, though.

Final word

If you are a part of this wonderful scheme called NPS, you should be availing the benefits offered by it under sections 80CCD (1) and 80CCD (2). The next time you fill the forms during income tax filing, do remember these sections and fill them appropriately. If you are not a part of NPS yet, you should consider it now.

  • Ram

    not a good advice…

  • SUBRATA GARAI

    HOW CAN DEDUCTION U/S 80CCD(2) , THAT CONTRIBUTION OF EMPLOYEE PLEASE SUGGESTION

  • Chaitanya

    I am self employed. I take full benefit of 80C limit(i.e 1.5 lacs). If I invest in NPS 50K(i.e 80ccd) will I get Tax deduction over & above 80C limit as mentioned in budget Feb2015

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