Introduction

Income tax can be a complex subject, but understanding provisions like Section 80CCD(1B) can significantly impact your financial planning. Therefore, This article will unravel the nuances of this section, providing insights, benefits, and practical advice.

1. What is Section 80CCD(1B)?

In other words, Section 80CCD(1B) refers to a specific subsection of the Income Tax Act, which deals with contributions made towards the National Pension System (NPS). In other words, This section allows an additional deduction of up to Rs. 50,000 over and above the limit of Section 80C.

2. Eligibility Criteria

To avail of the benefits under Section 80CCD(1B), you must meet the following criteria:

• You must be a taxpayer in India.
• You must contribute to the NPS.
• The contribution must be made over and above the limit specified in Section 80C.

3. Maximum Deduction Allowed

However, Under Section 80CCD(1B), you can claim a deduction of up to Rs. 50,000 in addition to the deductions available under Section 80C. Above all, This can lead to substantial tax savings.

4. Benefits of Section 80CCD(1B)

a. Dual Tax Benefit

In addition, Contributions made under this section offer a dual tax benefit – they reduce your taxable income and qualify for a deduction under Section 80C.

b. Retirement Planning

After that, By investing in NPS through Section 80CCD(1B), you are building a corpus for your retirement, ensuring financial security in your golden years.

5. How to Claim Deduction

Similarly, To claim the deduction under Section 80CCD(1B), you need to specify the amount contributed to the NPS in your income tax return.

6. Common Misconceptions

However, there are a few misconceptions about Section 80CCD(1B):

• It's only for government employees: False. Anyone can benefit from this section.
• The entire NPS contribution is deductible: Not true. Only the amount contributed under this section is eligible for the deduction.

7. Frequently Asked Questions (FAQs)

Q: Can I claim both Section 80CC and 80CCD(1B) deductions?

Yes, you can claim deductions under both sections, but the combined deduction cannot exceed Rs. 1.5 lakh.

Q: Is there a lock-in period for investments under Section 80CCD(1B)?

Yes, there is a lock-in period. The amount invested cannot be withdrawn before retirement.

Q: Can NRI individuals claim deductions under Section 80CCD(1B)?

No, NRIs are not eligible for deductions under this section.

Q: Can I change my NPS contribution amount during the financial year?

Yes, you can change your contribution amount, but keep in mind that the deduction is limited to Rs. 50,000.

Q: Do I need to provide any proof of NPS contribution while filing taxes?

Yes, it's advisable to keep records of your NPS contributions for tax verification purposes.

Q: Can I invest more than Rs. 50,000 in NPS?

Yes, you can invest more, but the deduction under Section 80CCD(1B) is capped at Rs. 50,000.

In conclusion,

However, Understanding and utilizing Section 80CCD(1B) can be a valuable asset in your tax planning. By making additional contributions to the NPS, you not only save on taxes but also secure your financial future. So, take advantage of this provision and make the most of your hard-earned money.

Download Automated Income Tax Preparation Excel-Based Software All in One for the Government & Non-Govt (Private) Employees for the F.Y.2023-24 and A.Y.2024-25

In other words, Features of this Excel Utility:-

1) This Excel utility prepares and calculates your income tax as per the New Section 115 BAC (New and Old Tax Regime)

2) This Excel Utility has an option where you can choose your option as a New or Old Tax Regime

3) For instance, This Excel Utility has a unique Salary Structure for Government and Non-Government Employee’s Salary Structure.

4) For instance, Automated Income Tax Arrears Relief Calculator U/s 89(1) with Form 10E from the F.Y.2000-01 to F.Y.2023-24 (Update Version)

5) For instance, Automated Income Tax Revised Form 16 Part A&B for the F.Y.2023-24

6) For instance, Automated Income Tax Revised Form 16 Part B for the F.Y.2023-24

7) Individual Salary Sheet

On September 28, 2023 by www.taxexcel.net

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Budget 2015 provided for additional exemption of Rs 50,000 for investing in NPS (National Pension Scheme) Tier 1 account u/s 80CCD(1B). This was to encourage NPS as a popular retirement planning option. And we all know anything related to tax saving automatically becomes a popular investment avenue. In an earlier post we had highlighted why you should invest in equity mutual funds than NPS, but still, I got people who were interested in opening NPS account and take advantage of Section 80CCD(1B).

Eligibility for NPS Account:

NPS account can be opened by anyone with age between 18 to 60 years. Even NRIs are eligible to open NPS accounts. NRIs can invest through normal banking channels or out of funds held in their NRE/FCNR/NRO account.

NPS Account Tiers:

NPS has two tiers.

1.                 Tier -I account is the primary account and the contribution to this account is locked till retirement.

2.                 Tier- II account is optional saving account and deposit and withdrawal to this account can be done anytime.

Type of NPS Account:

There are 4 types of account depending on the type of subscriber.

1.                 Government Sector – this account is opened for Government employees by their respective employers

2.                 Corporate Sector – this account is opened for Private Sector employees by their respective employers

3.                 All Citizen Model – for all citizens who are not covered in the above two categories

4.                 NPS Lite / Swavalamban – this is Government sponsored NPS scheme with some subsidy from the government

How to open the NPS Account?

The good news is opening NPS account is relatively simple. You can download the NPS application form by clicking here.

After filling the form you can submit it to your nearest Point Of Presence – Service Provider (POP-SP) along with your PAN card, address proof, canceled cheque, and the cheque for initial deposit.

How to fill NPS Account Opening Form?

The NPS account opening form is a 4-page simple form. The first page asks for Personal Details, Address, contact details, and bank details.

Page 2 has nomination details, NPS option, Pension Fund Selection and investment option selection.

Page 3 is just KYC verification by POP-SP.

Page 4 is the instruction page.

Select your Pension Fund

There are a total of 7 pension fund managers

1.                 LIC Pension Fund Limited

2.                 SBI Pension Funds Private Limited

3.                 UTI Retirement Solutions Limited

4.                 ICICI Prudential Pension Funds Management Company Limited

5.                 Kotak Mahindra Pension Fund Limited

6.                 Reliance Capital Pension Fund Limited

7.                 HDFC Pension Management Company Limited

Out of the above 7 only LIC, SBI and UTI are available for Government employees while all 7 are available for all other NPS accounts.

Asset Investment Options:

There are 3 types of assets you can invest in.

1.     Asset Class E– Investment in predominantly equity market instrument.

2.     Asset Class C-Investment in fixed income instruments other than Government Securities

3.     Asset Class G– Investment in Government Securities/Bonds

Active Vs Auto Choice:

You need to select between active and auto investment choice.

Active Choice – in this case, you can select the allocation between the above 3 asset classes. You can invest a maximum of 50% in Asset Class E.

Auto Choice – in the case of auto choice the allocation between assets happen based on the age of the subscriber. Till the age of 35 years, the allocation is 50% in Class E, 30% in Class C and 20% in Class G. every year the asset distribution is changed such that Class E is reduced by 2%, Class C reduced by 1% and Class G increased by 3%. At the age of 55, there is only 10% invested in Class E and C each and rest 80% is in Class G. The above asset distribution is done to keep the volatility to the minimum as the subscriber reaches withdrawal stage.

Download Automated Income Tax Arrears Relief Calculator U/s 89(1) with Form 10 E from the Financial Year 2000-01 to Financial Year 2018-19

How to Open NPS Account Online?

You can also open NPS account online if you have internet banking enabled for any of the 10 participating banks – Allahabad Bank, Bank of India, Bank of Maharashtra, Oriental Bank of Commerce, South Indian Bank, State Bank of Travancore, State Bank of Hyderabad, State Bank of Patiala, Tamilnadu Mercantile Bank and United Bank of India. .

Just go to e-NPS website, fill up the form and make the initial contribution.

Next, take a printout of the form, paste your photograph (do NOT sign across the photograph) & affix the signature. The form should be sent within 90 days from the date of allotment of PRAN to CRA at the following address:

Central Recordkeeping Agency (eNPS)

NSDL e-Governance Infrastructure Limited,

1st Floor, Times Tower,

Kamala Mills Compound, Senapati Bapat Marg,

Lower Parel, Mumbai – 400 013

What after NPS Form Submission?

On submission of NPS form, a 17 digit Permanent Retirement Account Number (PRAN) will be allotted to you. Within 2-3 weeks you would get a welcome kit containing a PRAN Card, IPIN/TPIN, Subscriber Master Report, Scheme Information Booklet along with a Welcome Letter through the post.

Subsequent Contributions:

All the active NPS account holders can do subsequent contributions online. For every contribution, you need to authenticate PRAN using the OTP sent on the registered mobile number. Next, you can pay using your debit card or internet banking.

Investment Limit in NPS:

The initial contribution has to be made at the time of submitting the form at the POP-SP. The initial contribution should be minimum Rs 500 for Tier-I account and Rs 1,000 for Tier-II account.

Thereafter you should contribute at least once every year in both Tier-I and Tier-II (if opened) account. The minimum contribution should be rs 500 for Tier-I account and Rs 250 for Tier-II account.

Overall the minimum contribution should be Rs 6,000 for Tier-I account and there is no maximum investment limit. The minimum balance for Tier-II account should be at least Rs 2,000 at the end of each financial year.

There is no limit to the number of times you can make a deposit.

The penalty for not making minimum Contribution:

If the subscriber fails to make the above minimum contribution, a default penalty of Rs. 100 per year of default is levied and the account would become dormant. In order to reactivate the account, the subscriber would have to submit form Form UOS-S10 pay the minimum contributions (Rs 500), along with penalty (Rs 100), due for the period of dormancy. The dormant account will be closed if the account value falls to zero.

Charges for NPS:

NPS charges can be classified into 4 headers:

1.                 Point of presence (PoP) charges

2.                 Central record-keeping agency (CRA) charges

3.                 Pension fund management charges and

4.                 Custodian charges

NPS Tax Benefits:

NPS Tier -I account has tax benefit under 3 sections:

1. Section 80CCD(1) – Employee contribution up to 10% of basic salary and dearness allowance (DA) up to 1.5 lakh is eligible for tax deduction. [This contribution is part of Sec 80C 1.5 Lakh investment limit]. Self-employed can also claim this tax benefit. However, the limit is 10% of their annual income up to a maximum of Rs 1.5 Lakhs.

2. Section 80CCD(1B) – Additional exemption up to Rs 50,000 in NPS is eligible for income tax deduction. This was introduced in Budget 2015.

3. Section 80CCD(2) – Employer’s contribution up to 10% of basic plus DA is eligible for deduction under this section above the Rs 1.5 lakh limit in Sec 80CCD(1). This is also beneficial for an employer as it can claim tax benefit for its contribution by showing it as a business expense in the profit and loss account. Self-employed cannot claim this tax benefit.

On January 23, 2019 by www.taxexcel.net

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The New Pension System has generated a lot of interest ever since Budget 2015 announced additional tax benefits for investments in the scheme.  For someone in the 30 per cent tax bracket, this is a clear benefit of Rs 15,000 on investment of Rs 50,000 over and above the Rs 1.5 lakh allowed under Section 80 C. This article gives an overview of NPS, explains NPS tax benefits, answers frequently asked questions regarding NPS and tax.

On July 22, 2018 by www.taxexcel.net

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                                                                                     CIRCULAR NO: 20/2015

                                          F.No. 275/192/2015-IT(B)

                                              Government of India

                                              Ministry of Finance

                                           Department of Revenue

                                        Central Board of Direct Taxes

                                                                                                            North Block, New Delhi

                                                                                                           Dated the 2nd December 2015

SUBJECT: INCOME-TAX DEDUCTION FROM SALARIES DURING THE FINANCIAL YEAR 2015-16 UNDER SECTION 192 OF THE INCOME-TAX ACT, 1961.

                                                               *****

Reference is invited to Circular No.17/2014 dated 10.12.2014 whereby the rates of deduction of income-tax from the payment of income under the head "Salaries" under Section 192 of the Income-tax Act, 1961 (hereinafter ‘the Act’), during the financial year 2014-15, were intimated. The present Circular contains the rates of deduction of income-tax from the payment of income chargeable under the head "Salaries" during the financial year 2015-16 and explains certain related provisions of the Act and Income-tax Rules, 1962 (hereinafter the Rules). The relevant Acts, Rules, Forms, and Notifications are available at the website of the Income Tax Department- www.incometaxindia.gov.in.

Download and Prepare at a time 100 employees Form 16 Part-A&B for F.Y.2017-18 [This Excel Utility have all the amended section of Income Tax as per Finance Budget 2017-18]

5.5.3 Deduction in respect of contribution to pension scheme of Central Government (Section 80CCD):

Section 80CCD(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).

As per section 80CCD(1B), an assessee referred to in 80CCD(1) shall be allowed a 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.

As per Section 80CCD(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.

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.

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 up to Rs. 50,000/-. However, the contribution made by the Central Government or any other employer to a pension scheme u/s 80CCD(2) shall be excluded from the limit of Rs.1,50,000/- provided under this section.

5.5.3 Deduction in respect of contribution to pension scheme of Central Government (Section 80CCD):

Section 80CCD(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).

As per section 80CCD(1B), an assessee referred to in 80CCD(1) shall be allowed a 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.

As per Section 80CCD(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.

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.

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 up to Rs. 50,000/-. However, the contribution made by the Central Government or any other employer to a pension scheme u/s 80CCD(2) shall be excluded from the limit of Rs.1,50,000/- provided under this section.

On July 21, 2018 by www.taxexcel.net

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