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Section 80CCD deals with the tax deductions available to individuals against contributions made to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY).
The National Pension Scheme is an economical pension scheme created by the Indian government for Indian citizens. Initially, it was available only for government employees. However, as time went by, the scheme became available to private corporations and individuals as well. The NPS enables citizens to build a retirement fund for a financially stable future.
About Section 80CCD
Section 80CCD is a section from the Income Tax Act of 1961 that facilitates tax deductions to individuals for the contributions they make towards the National Pension Scheme (NPS) or the Atal Pension Yojana (APY). The contributions made by employers towards their employees in the NPS also come under Section 80CCD.
The national pension system (NPS) is a voluntary retirement savings scheme designed to enable the individuals to financially secure their future by making systematic savings during their work period. NPS will develop financial discipline in the citizens and help them save for their retired life. It seeks to provide a solution for every citizen to sustain himself/herself through enough income in their retired years. Some of the details and features of the NPS scheme are as follows:
There are about 7 pension fund managers in the country that manage the NPS scheme. They are
The responsibilities of the pension fund manager are as follows:
Atal Pension Yojana (APY) is available to all bank account holders. It can be subscribed by any citizen of India within the age limit of 18 to 40 years. The subscribers would receive the specified minimum pension of Rs. 1000 per month.
The various terms and conditions governing the deductions under section 80CCD are:
Section 80CCD can be divided into further subsections-Section 80CCD(1) and Section 80CCD (2).
Section 80CCD (1) constitutes the rules and regulations related to income tax deductions allowed to individuals for the contributions made to the NPS. The following are the key features of 80CCD (1):
It deals with a tax benefit given to employers for the contribution they make to the pension scheme. If your employer contributes to the NPS account, he gets a tax deduction under Section 80CCD (2).
Sections 80CCD (1) and 80CCD (2) were introduced in 2004 after the introduction of the NPS.
Section 80CCD of the Income Tax Act allows you to enjoy a significant deduction on your taxable income. Always research through to understand the various changes in the taxation system.
1. How much tax is exempt from 80CCD?
2. Does Section 80CCD form a part of Section 80C?
The benefits of Section 80CCD come under 80C. The deductions claimed under 80CCD cannot be claimed again under 80C. The total amount of deductions under 80C, 80CCC and 80CCD combined together is capped at Rs. 2 Lakh. An additional deduction of Rs. 50,000 is allowed under 80CCD (1b).
3. What is the difference between 80CCD (1) and 80CCD (1b)?
Section 80CCD (1) enables a deduction of up to Rs.1,50000 for self-contributions to NPS or APY. Section 80CCD (1b) allows an additional deduction of up to Rs. 50,000 above the limit of Section 80CCD(1).
4. What is the NPS interest rate?
The NPS interest rates usually range from 9% to 12% per annum. NPS contributions towards tier 1 accounts are liable to tax deductions.
5. How to invest in 80CCD (1B)?
To encourage investment in NPS, Section 80CCD(1B) of the Income-tax Act allows an additional deduction of Rs 50,000 over and above the Rs 1.5 lakh available under Section 80CCE. *It is assumed that contribution to NPS by the employee does not exceed 10% of the employees' salary.
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