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Section 80CCD relates to the tax deduction for the contributions made in the National Pension System (NPS) and the Atal Pension Yojana (APY). Under this section, you can claim a deduction of up to ₹2 lakh in a financial year (apart from the employer’s contribution, as detailed below).

Section 80CCD is further divided into two subsections: Section 80CCD(1) and Section 80CCD(2). Section 80CCD (1) has a subsection called 80CCD(1B)

As already outlined above, deductions under Section 80CCD of the Income Tax Act are divided into two: Section 80CCD(1) and Section 80CCD(2). Section 80CCD(1) has a subsection called Section 80CCD(1B). Let’s understand each of them in detail.

Section 80CCD(1) of the Income Tax Act relates to the deduction applicable to employed and self-employed individuals who contribute to the NPS and the Atal Pension Yojana. Under this section, any individual over 18 years who contributes to the NPS or the Atal Pension Yojana can claim a deduction of up to ₹1,50,000 per annum. However, this is subject to the following conditions: a government or a private-sector employee cannot claim more than 10% of salary as NPS or APY contributions. Here, salary means basic salary plus dearness allowance. For self-employed individuals, the limit is 20% of gross income.

In the Union Budget of 2015, the government introduced a new subsection to Section 80CCD(1) as an amendment – Section 80CCD(1B). This was done to boost the investment in the NPS and the Atal Pension Yojana schemes. As per Section 80CCD(1B), individuals who are employees or self-employed can claim an additional deduction of ₹50,000 when they contribute to the NPS or the Atal Pension Yojana.

This deduction is over and above the amount that can be claimed under Section 80CCD(1). However, when claiming this, make sure there is no duplication of claim, i.e., you do not claim the same contribution amounts under both sections.

Salaried individuals may enjoy the additional benefit of their employer contributing to their pension schemes, such as the NPS. Section 80CCD(2) of the Income Tax Act gives employed individuals the benefit of claiming income tax deductions for contributions made by their employer. It is subject to the following conditions:

*The limit of ₹1,50,000 deduction is inclusive of Section 80C, 80CCC and 80CCD(1) deductions. This means that a maximum of ₹ 1,50,000 can be claimed under all three sections combined. Section 80CCD(1B) deduction of up to₹ 50,000 is over and above this limit. Therefore, under Sections 80C, 80CCC, 80CCD(1) and 80CCD(1B), a maximum deduction of ₹ 2,00,000 can be claimed.

Contributions to the National Pension System or NPS are eligible for tax deductions under Section 80CCD. NPS is a retirement instrument that was first brought into the market in 2004. Initially, it was meant for government employees, but in 2009, it was opened up for others.

Today, any public-sector, private-sector employee as well as self-employed individuals who are over 18 years of age can invest in NPS. NPS is a market-linked instrument managed by fund managers who invest money across four different asset classes. Investments in NPS are usually locked in until retirement or superannuation age of 60 years. Individuals can choose to invest further until 70 years of age.

Some important things to know about NPS are:

Atal Pension Yojana (APY), also known as Pradhan Mantri Pension Yojana is another government-backed retirement scheme that provides investors with a minimum guaranteed pension on retirement.

This pension yojana is aimed primarily at people in the unorganized sector. Individuals between the age of 18 and 40 are eligible to apply for this pension scheme. Just like NPS, APY contributions are locked in until 60 years of age, with premature withdrawals permitted under special circumstances. Atal Pension Yojana benefits for tax are similar to that of NPS tax benefits:

When claiming deductions under Section 80CCD, here are some things to keep in mind:

When filing your income tax returns, as a salaried or self-employed individual, you can claim up to ₹ 1,50,000 jointly under Section 80CCD(1) for contributions made to NPS or APY individually and Section 80CCD(2) for contributions made by the employer. An additional ₹ 50,000 can be claimed for self-contributions made to NPS or APY under Section 80CCD(1B).

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