Section 80CCD offers tax deductions on eligible contributions to notified pension schemes like the National Pension System (NPS). The section encompasses an individual’s contribution as well as eligible employer contribution, if any. The various sub-sections of Section 80CCD provide deductions on different criteria and understanding the differences among them is key to claiming benefits.
What Is Section 80CCD of the Income Tax Act?
Section 80CCD of the Income Tax Act allows for tax deductions on eligible contributions to a notified pension scheme. It comprises three sections, namely, 80CCD(1), 80CCD(1B), and 80CCD(2), with the first two pertaining to an individual’s contribution and the last one relating to an employer’s contribution. Each sub-section contains different rules and limits regarding pension contributions. The eligibility to claim deductions under these sub-sections varies for salaried employees, self-employed individuals, and people getting a contribution from their employers.
What Are the Different Types of Deductions under Section 80CCD?
An individual can claim deductions under three sub-sections, namely, 80CCD(1), 80CCD(1B), and 80CCD(2). These sub-sections provide benefits on the following:
Section 80CCD(1): Deduction for One’s Own Contribution
This Section provides eligible individuals with a deduction on their contribution to their notified pension accounts. Salaried workers can claim a deduction of up to 10% of their salary (basic + dearness allowance), whereas the deduction for self-employed people is up to 20% of gross total income. However, the deduction under this Section cannot exceed ₹1.5 lakh, as it is clubbed with other Sections (80C and 80CCC) to form the overall ₹1.5 lakh deduction limit under Section 80CCE.
Section 80CCD(1B): Additional ₹50,000 Deduction
An additional deduction of ₹50,000 is available to eligible taxpayers under this Section. This deduction is also clubbed with others under the ₹1.5 lakh limit, but it is a separate deduction from the ₹1.5 lakh limit under Sections 80C, 80CCC, and 80CCD(1). Consequently, it does not affect the benefits available under the other two Sections.
Section 80CCD(2): Deduction for Employer’s Contribution
This Section allows eligible employees to claim a deduction on contributions made by their employers to their notified pension accounts. For the Assessment Year (AY) 2026-27, the deduction for employees under this Section is up to 14% of salary for all types of employers if they are under the new tax regime. Additionally, for salaried workers under the old tax regime, the deduction under this Section is up to 10% of salary for private or other employers and 14% for Central or State Government employers.
Who Is Eligible to Claim Deduction under Section 80CCD?
People eligible to claim deduction under this Section include:
Salaried individuals making their own contribution: Such individuals can claim deductions under 80CCD(1) and 80CCD(1B)
Self-employed individuals making their own contribution: They can also claim deductions under 80CCD(1) and 80CCD(1B) on the basis of gross total income
Employees receiving contribution from their employers: Such employees are eligible to claim a deduction under Section 80CCD(2) in addition to those under 80CCD(1) and 80CCD(1B). However, self-employed individuals are not eligible to claim deductions under this Section
Parents or guardians who make eligible contributions to their wards’ NPS Vatsalya accounts: They may also be able to claim deductions in certain cases
What Is the Maximum Deduction Limit under Section 80CCD?
The maximum deduction limit under this Section depends on the sub-section under which an individual claims the benefit. As mentioned above, the deduction under 80CCD(1) is contingent upon an individual’s salary or gross total income and cannot exceed ₹1.5 lakh, as it is clubbed with Sections 80C and 80CCC. On the other hand, ₹50,000 is the maximum deduction available under 80CCD(1B). Finally, the deduction available under 80CCD(2) is contingent upon the percentage of one’s salary (or gross total income, in the case of self-employed people) contributed by the employer. Therefore, it is important to note that ₹2 lakh is not the deduction limit under 80CCD in general and may vary on a case-to-case basis.
Is Section 80CCD Available Under the New Tax Regime?
Is 80CCD available in the new tax regime? Yes, to some extent. The deduction available under 80CCD(2) is available under the new tax regime as it pertains to an employer’s contribution rather than an individual’s. Is 80CCD(1B) available in the new tax regime? No, it is not. Is 80CCD(2) available in the new tax regime? Yes, it is. In short, the deductions under 80CCD(1) and 80CCD(1B) are not available under the new tax regime, whereas those under 80CCD(2) are.
What Pension Schemes Are Eligible under Section 80CCD?
Eligible pension schemes under this Section include:
National Pension System (NPS)
NPS is the notified pension scheme associated with most of the deductions, with 80CCD(1) applying to an individual’s contribution and 80CCD(2) applying to their employer’s contribution
NPS Vatsalya
Under the old tax regime, eligible parents or guardians can claim a deduction of up to ₹50,000 under 80CCD(1B) when making an eligible contribution to their wards’ NPS Vatsalya accounts
What Are the Conditions for Claiming Deduction under Section 80CCD?
The following are some of the conditions for claiming deduction under this Section:
An individual must make an eligible contribution to a notified pension scheme for claiming benefits under this Section
An individual cannot claim the same contribution amount more than once under this Section
The deduction claimed must not exceed the limits under the relevant sub-section, namely, the percentage under 80CCD(1) and 80CCD(2) and ₹50,000 under 80CCD(1B)
An individual’s tax regime choice determines the eligibility to claim deduction under each of the sub-sections
An individual must retain the records of contribution, including their Permanent Retirement Account Number (PRAN), for the relevant authorities’ verification
How to Claim Deduction under Section 80CCD while Filing ITR?
An individual can claim deduction under this Section while filing their Income Tax Return (ITR) in the following manner:
Identify whether their contribution falls under 80CCD(1), 80CCD(1B), or 80CCD(2)
Check which tax regime they have selected while filing their ITR
Ensure that they have retained the relevant records, including their contribution and PRAN
Enter the eligible amount and details under each sub-section while filing the ITR, ensuring that the contribution and PRAN entered match those in the relevant records
Common Mistakes to Avoid While Claiming under Section 80CCD
The following are some of the common mistakes that people make while claiming deduction under this Section:
Mistake: Forgetting to differentiate between one’s contribution and that of one’s employer.
Correct: An individual must remember that they have to claim their contribution under 80CCD(1) and their employer’s contribution under 80CCD(2). In short, they must ensure that they are claiming the correct contribution under the correct sub-section
Mistake: Considering the ₹50,000 deduction under 80CCD(1B) to be part of the ₹1.5 lakh deduction limit under 80CCE.
Correct: The ₹50,000 deduction under 80CCD(1B) is additional and, consequently, separate from the ₹1.5 lakh deduction limit under 80CCE
Mistake: Forgetting to consider the tax regime under which they are filing ITR.
Correct: An individual must consider their tax regime while claiming deduction under this Section because the three sub-sections are not available under the new tax regime
Mistake: Claiming employer contribution (under 80CCD(2)) as one’s own contribution.
Correct: An individual must understand that they can only claim their contribution under 80CCD(1) and their employer’s contribution under 80CCD(2)
Mistake: Using the same contribution amount to claim deduction under more than one sub-section of this Section.
Correct: An individual must use different contribution amounts to claim deduction under different sub-sections of this Section
Section 80C vs. 80CCD: What Is the Difference?
While both Sections allow for tax deduction on eligible contributions, Section 80C pertains to a wide range of contributions and payments, including insurance, whereas 80CCD only pertains to eligible contributions to notified pension schemes. Is 80CCD included in 80C? Only partly. Section 80CCD(1) is included in the ₹1.5 lakh deduction limit under 80CCE, which, in turn, is part of ₹1.5 lakh deduction limit under Section 80C. In contrast, the ₹50,000 deduction available under 80CCD(1B) is additional and, Consequently, separate from the ₹1.5 lakh deduction limit under 80CCE.
Conclusion
Section 80CCD provides deduction on eligible contributions to notified pension schemes. It comprises three sub-sections that provide deductions based on different criteria. While 80CCD(1) pertains to an individual’s contribution, 80CCD(1B) provides an additional deduction, and 80CCD(2) pertains to an employer’s contribution. The eligibility to claim deductions under these sub-sections and the limits associated with them vary.
FAQs about Section 80CCD
1. What is Section 80CCD of the Income Tax Act?
Section 80CCD provides tax deductions for eligible contributions to notified pension schemes like the National Pension Scheme (NPS). It contains three sub-sections that pertain to an individual’s contribution, an additional deduction, and an employer’s contribution, respectively.
2. What is the difference between 80CCD(1), 80CCD(1B) and 80CCD(2)?
While 80CCD(1) provides a deduction for an individual’s contribution to a notified pension scheme, 80CCD(1B) provides an additional deduction for the same. On the other hand, 80CCD(2) provides a deduction for an employer’s contribution to an individual’s notified pension scheme.
3. What is the maximum deduction available under Section 80CCD?
The maximum deduction varies depending on the sub-section under which an individual claims the benefit. For self-employed people, the deduction under 80CCD(1) is up to 20% of gross total income and, for salaried workers, it is up to 10% of salary (basic + dearness allowance). However, it cannot exceed ₹1.5 lakh, as it is clubbed with deductions under other Sections (80C and 80CCC) to form the overall ₹1.5 lakh deduction limit. Furthermore, an additional deduction of ₹50,000 is available under 80CCD(1B). Finally, the deduction under 80CCD(2) depends on the percentage of one’s salary (or gross total income, in the case of self-employed people) contributed by one’s employer.
4. Is the ₹50,000 deduction under 80CCD(1B) over and above ₹1.5 lakh?
Yes, it is. The ₹50,000 deduction under 80CCD(1B) is additional and, consequently, separate from the ₹1.5 lakh deduction limit under Sections 80C, 80CCC, and 80CCD(1).
5. Is Section 80CCD available under the new tax regime?
Only partly. The deduction available under 80CCD(2) is available under the new tax regime as it pertains to an employer’s contribution rather than an individual’s contribution. On the other hand, the other two sub-sections are not available under the new tax regime.
Disclaimer
Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Returns under NPS are subject to market risk and are prone to fluctuation depending on the state of the Financial market.
Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the schemes of DSP Pension Fund Managers Private Limited. Tax laws are subject to change.
