What is Sec 80CCD(1B) Individuals who contribute to the NPS are eligible for deductions under Section 80CCD of the Internal Revenue Code. For donations made to the NPS under Section 80CCD , individuals could claim a deduction of up to Rs. 1 lakh in income tax. The government increased the maximum amount due to the NPS to Rs. 1.50 lakh per year in the 2015 budget. A new sub-section 1B was also established, which allowed individual taxpayers to claim an extra deduction of up to Rs. 50,000 for payments to the NPS.. Over and beyond the benefit of Rs. 1.50 lakhs allowed as a deduction under Sec 80CCD(1B), an extra deduction of Rs. 50,000/- is available to assess (1). As a result, Section 80CCD(1) + Section 80CCD(2) raises the maximum exemption limit to Rs. 2.00 lakhs (1B). Section 80CCD (1B) Individuals are eligible to claim an income tax deduction for contributions made to the NPS under this section. A self-employed individual, a government employee or a private employee may contribute. Al...
What is Sec 80CCD(1B)
Individuals who contribute to the NPS are eligible for deductions under Section 80CCD of the Internal Revenue Code. For donations made to the NPS under Section 80CCD, individuals could claim a deduction of up to Rs. 1 lakh in income tax. The government increased the maximum amount due to the NPS to Rs. 1.50 lakh per year in the 2015 budget. A new sub-section 1B was also established, which allowed individual taxpayers to claim an extra deduction of up to Rs. 50,000 for payments to the NPS.. Over and beyond the benefit of Rs. 1.50 lakhs allowed as a deduction under Sec 80CCD(1B), an extra deduction of Rs. 50,000/- is available to assess (1). As a result, Section 80CCD(1) + Section 80CCD(2) raises the maximum exemption limit to Rs. 2.00 lakhs (1B).
Section 80CCD (1B)
Individuals are eligible to claim an income tax deduction for contributions made to the NPS under this section. A self-employed individual, a government employee or a private employee may contribute. All Indian citizens ages 18 to 65 who are contributing to the NPS are covered by the provisions of this section. NRIs are also covered. This section contains the following provisions:
There is a maximum of 10% deduction allowed under this section (basic + DA) or 10% of a person's gross income.
For a given financial year, the self-employed individuals are now permitted to deduct 20% of their gross total income, with a maximum of Rs 1,50,000/-.
The Union budget for the year 2015 includes a new sub-section (1B) to Section 80CCD. As a result of these provisions, individuals can deduct an additional Rs. 50,000. Self-employed and salaried individuals are eligible for this benefit.
Accordingly, the maximum deduction available through section 80CCD has been increased to Rs. 2,00,000/-. Tax benefits can be claimed under Section 80CCD(1B) in addition to the deductions allowed under Section 80CCD(1).
Notes on Section 80CCD(1B) deductions
There are a few key aspects in Section 80CCD(1B) that you should be aware of.
- Only contributions to NPS Tier 1 accounts are eligible for the extra deduction of Rs. 50,000/-.
- The deduction under Section 80CCD is not available to Tier 2 accounts (1B)
- Salaried and self-employed people can both take advantage of the deductions under Section 80CCD(1B).
- You must provide documentation evidence of the transaction involving the NPS donation.
- Partial withdrawals are permitted under the NPS, although they are subject to certain restrictions.
- The overall exemption limit under Section 80CCD(1B) is Rs. 50,000/-, which is apart from any exemptions granted by Section 80 C. As a result, you are eligible for a maximum deduction of Rs. 2,00,000/-.
- A nominee who cancels the NPS account after the deceased assessee passes away receives the money tax-free.
- If only a portion of the contribution is taken out of the account, only 25% of the donation is tax-free.
- A person who is employed and closes the NPS account or opts out of NPS is only exempt from paying tax on 40% of the total amount.
- When the assessee reaches the age of 60, he or she can withdraw 60% of the whole amount as tax-free income. If the remaining 40% is utilized to purchase an annuity plan, it is also tax-free. Section 80CCD(1B) provides you with a fantastic chance to reduce your tax payments significantly. This manner, you may not only minimize your current tax bills, but also work toward building a sizable retirement fund. Before taking any action relating to your NPS account regarding Section 80CCD, bear the considerations listed above in mind (1B).
Conditions for deductions under Section 80CCD
Section 80CCD deductibility terms and conditions are listed here.
- Salary and self-employed individuals can take advantage of Section 80CCD deductions. Employees of the government are required to participate, but others may opt out.
- According to Section 80 CCD, a maximum deduction of Rs 2 lakhs is allowed. In addition, there is a deduction of Rs 50,000/- available under section 1B.
- The combined deduction under Section 80 CCD and 80 CCD cannot exceed 2 lakhs in the case of tax benefits accrued under Section 80CCD, i.e. you can't claim them again under Section 80C.
- As per the applicable provisions, money received from NPS as monthly payments or surrendered accounts is subject to taxation.
- Amounts reinvested into NPS' annuity plan that are tax-free are exempt from income tax. During the filing of your income tax returns you can claim deductions under Section 80CCD. It is necessary to provide proof of payment in order to claim this deduction.
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