All Rules of 80 CCD for CPS Employees Income Tax Deductions

Details of All Rules of 80 CCD for CPS Employees Income Tax Deductions. Deduction in respect of contribution to pension scheme of Central Government. Section - 80CCD, Income-tax Act, 1961-2015. Deductions allowed under 80CCD(1), 80CCD(IB), 80CCD(2) as applicable for Contributory Pension Scheme CPS Employees while computing Income Tax or submitting their Tax Returns. Let us discuss the Benefits and Deficits (Merits and De-Merits)
All Rules of 80 CCD for CPS Employees Income Tax Deductions

All Rules of 80 CCD for CPS Employees Income Tax Deductions

Before going to the Deductions Sections for CPS Employees under Section 80CCD Let us know a horrible thing as per the Income Tax Act Section - 17, of Income-tax Act, 1961 as amended 2015,
Rule (1)(viii) and And Rule 5.2.1 of Income Tax Circular 2015-16

Salary Includes the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD.
Explanation:
The contribution made by the Central Government or any other employer to the account of the employee (Matching Grant for CPS Contribution) under the New Pension Scheme as notified vide Notification F.N. 5/7/2003- ECB&PR dated 22.12.2003 stated in  Annexure VII referred to in section 80CCD
  1. Let us briefly have a look at the F.No. 5/7/2003-ECB &PR- The government approved on 23rd August, 2003. It states that "The system would be mandatory for all new recruits to the Central Government service from 1st of January 2004 (except the armed forces in the first stage). The monthly contribution would be 10 percent of the salary and DA to be paid by the employee and matched by the Central government. However, there will be no contribution form the Government in respect of individuals who are not Government employees. The contribution and investment returns would be deposited in a non-withdrawable pension tier-I account. ....." 
  2. Note that this contribution by Employer can be shown in Deductions in 80CCD(2).. Refer below to now more.

Deductions allowed under 80CCD for CPS Employees

As per the Income Tax Act 1961 as amended by Finance Act 2015 and Income Tax Circular issued for 2015 the Rule under 80 CCD is as follows:
Rule: 5.5.3 Deduction in respect of contribution to pension scheme of Central Govt (Section 80CCD) www.apteachers.in:

Section 80CCD(1)
  1. Section 80 CCD(1) allows an employee, being an individual employed by the Central Government on or after 01.01.2004 or being an individual employed by any other employer, or any other assessee being an individual, a deduction of an amount paid or deposited out of his income chargeable to tax under a pension scheme as notified vide Notification F. N. 5/7/2003- ECB&PR dated 22.12.2003 National Pension System-NPS or as may be notified by the Central Government. However, the deduction shall not exceed an amount equal to 10% of his salary (includes Dearness Allowance but excludes all other allowance and perquisites).
So 10% CPS Subscription amount can be shown in 80CCD(1) section in Deductions. We should note that this 10% CPS Subscription comes into the Tier-1 Account. (Means mandatory subscription for employees)


This 80CCD(IB) is newly inserted in section 80CCD by the Finance Act, 2015, w.e.f. 1-4-2016
  1. As per section 80 CCD(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. Full Details at www.apeachers.in
  2. NPS allows you an additional tax deduction on saving of Rs. 50,000 over and above the limit of Rs. 1.50 lakhs available under section 80C of the income tax Act, 1961. The exclusive tax benefit of Rs. 50,000 u/s 80CCD(1B) has made an investment option for saving tax. With the ending of the financial year round the corner, To take the benefits of this tax saving plan, you may approach the Nodal Office or visit www.npstrust.org.in for making online contribution.
Section - 80CCD(2)
  1. As per Section 80 CCD(2), where any contribution in the said pension scheme is made by the Central Government or any other employer then the employee shall be allowed a deduction from his total income of the whole amount contributed by the Central Government or any other employer subject to limit of 10% of his salary of the previous year.
  2. Hence The contributions made by your employer (Govt Matching Grant) towards your NPS account qualifies for deduction under Section 80CCD (2) without attracting the limit of Rs 1.5 lakhs laid down in Section 80 CCE from the financial year 2011-12.
  3. The contribution made by the Central Government or any other employer (State Govt also) to a pension scheme u/s 80CCD(2) shall be excluded from the limit of Rs.1,50,000/- provided under this section.
If any amount is standing to the credit of the employee in the pension scheme referred above and deduction has been allowed as stated above, and the employee or his nominee receives this amount together with the amount accrued thereon, due to the reason of
(i) Closure or opting out of the pension scheme or
(ii) Pension received from the annuity plan purchased and taken on such closure or opting out then the amount so received during the FYs shall be the income of the employee or his nominee for that Financial Year and accordingly will be charged to tax.
Where any amount paid or deposited by the employee has been taken into account for the purposes of this section, a deduction with reference to such amount shall not be allowed under section 80C.
Further it has been specified that w.e.f 01.04.09 any amount received by the employee from the New Pension Scheme shall be deemed not to have been received in the previous year if such amount is used for purchasing an annuity plan in the same previous year.

Important Note:
It is emphasized that as per the section 80CCE the aggregate amount of deduction under sections 80C, 80CCC and Section 80CCD(1) shall not exceed Rs.1,50,000/-. The deduction allowed under section 80 CCD(1B) is an additional deduction in respect of any amount paid in the NPS upto Rs. 50,000/-. However, the contribution made by the Central Government or any other employer (State Govt also)  to a pension scheme u/s 80CCD(2) shall be excluded from the limit of Rs.1,50,000/- provided under this section. These are the rules of 80CCD for Employees Income Tax Deductions.

8 comments:

  1. So the new benefit will be applicable from 2016-17 Financial year na sir???

    ReplyDelete
  2. Salary deduction amount ni 150000 ki additional ga benefit untunda

    ReplyDelete
  3. where should be shown in 80CCD(2) amount in income tax calculations
    pls explain in detail about this

    ReplyDelete
  4. I am CPS employee of State Govt. of AP, My request is that apart fron 1,50,000/- is there any additional dedution eligibility

    ReplyDelete
  5. I am CPS employee of State Govt of TN, My request is that apart from 1,50,000/- is there any additional deduction eligibility

    ReplyDelete
  6. 50000 additional benefit should be from financial year 2015-16 and assessment year 2016-17.rt

    ReplyDelete
    Replies
    1. Both are same... 2015-16 financial year means 2016-17 assessment year

      Delete
  7. For getting tax benefit, is it mandatory to deposit 50,000 in Tier I of NPS additionally, apart from the regular deduction of 10% of the salary amount. In other words can the regular deduction of 10% of salary in Tier I of NPS be considered for deduction under 80CCD(1b)rule.

    ReplyDelete