All you need to know about Section 80CCD of Income Tax Act

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To encourage retirement savings, the government provides tax deduction to individuals against contributions made to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY) – under section 80CCD of Income Tax Act 1961. NPS is a notified pension scheme managed by the Pension Fund Regulatory and Development Authority (PFRDA) and Central Government. On retirement 60% of the deposited amount is given to the NPS subscribers as a lump sum and the remaining amount is paid out in the form of annuity.

Three sub-sections under section 80CCD 1) Under sub-section 80CCD (1), salaried employees can avail tax exemption by contributing up to 10% of their salary and self employed can deposit up to 20% of their total income in a pension account. They can avail a maximum deduction of Rs 1.5 lakh. Atal Pension Yojna is also included in 80CCD 1. This deduction is part of section 80C of IT Act.

2) You can claim additional tax deduction of Rs 50,000 on NPS contributions under sub-section 80CCD (1B). This deduction is over and above Rs 1.5 lakh prescribed under section 80C.

3) Employer’s contribution towards NPS is also eligible for deduction under sub-section 80CCD (2). The contribution of the employer can be up to 10 percent of the employee’s salary.

Who can take advantage? Any person aged between 18 years and 60 years can subscribe to the National Pension System (NPS). Earlier it was reserved only for government employees, but since 2009 the scheme has been opened to private sector employees also.