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...
The timely and accurate payment of income tax is crucial for the economic growth of the country. As an Indian citizen, you are responsible for paying your taxes on time. There are a number of provisions in the Income Tax Act of 1961 that allow you to deduct investments made in specific ways. A popular deduction option is Section 80CCD.
Section 80CCD
According to Section 80CCD, individuals can deduct contributions to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY). This section also includes contributions made by employers to the NPS. NPS is a notified pension scheme of the Central Government.
To clarify the available deductions for income tax assesses, Section 80CCD has been divided into two subsections.
One subsection is concerned with rules regarding tax deductions applicable to salaried or self-employed professionals; the other concerns contributions by employers to the NPS.
Section 80 CCD (1b) of Income Tax Act
The section 80CCD(1B) specifically addresses contributions made by an individual (either an employee or self-employed) to pension schemes notified by the government. The section provides an additional deduction of Rs 50,000 in addition to the threshold of Rs 1.5 lakh under section 80C. An individual can claim a total deduction of Rs 2 lakh by investing in 80C and contributing to the national pension scheme under section 80CCD(1B)
Having a good tax plan will save you money
Tax planning allows you to save a significant amount towards your taxation liabilities and increase your income. This deduction provides you with both tax savings and income generation benefits. There are new deductions or amendments the government introduces from time to time that you need to pay close attention to. Section 80 CCD (1B), which pertains to the contributions made to the NPS, is one such deduction that you can take advantage of.
What is NPS??
It is a pension plan that is available to both government employees and private citizens.
NPS is a popular option for individuals who would like to build an income stream for retirement. The money deposited in NPS is invested in many instruments, including the equity market.
In general, NPS is considered one of the lowest-cost investment options with equity exposure, since the returns are directly dependent on market performance. While NPS returns are not guaranteed, on average, they are among the highest in the market.
Types of NPS Account
There is 2 type of NPS Account available which known as NPS Tier 1 and NPS Tier 2
Tier I account
In a Tier I Account you would have to invest a minimum of 500 rupees at a time and 1 000 rupees a year if you plan to invest in the National Pension Scheme.
Tier II Account
The Tier II Account is an account in which, after investing in the Tier I Account, you are welcome to invest at any time a minimum amount of INR 250. A minimum amount of investment per year is not imposed.A minimum deposit of INR 1000 is required to open the account.
Important things to remember when claiming deductions under Section 80CCD(1B)
The following are some critical points about Section 80CCD(1B) that you should know.
- Contributions to NPS Tier 1 accounts are eligible for an additional deduction of Rs. 50,000/-
- Tier 2 accounts are not eligible for the deduction under Section 80CCD(1B).
- Section 80CCD(1B) allows deductions for both salaried and self-employed individuals
- To support your contribution to the NPS, you need to provide documentary evidence
- The NPS allows partial withdrawals, but there are specific terms and conditions
- In addition to the exemption under Section 80C, the limit under Section 80CCD(1B) is Rs. 50,000/-. Therefore, Rs. 2,00,000/- is the maximum deduction you can claim
- When the assessee dies and the nominee closes the NPS account, the amount
- received by the nominee is not taxable
- Partial withdrawals from the account are exempt from taxes up to 25% only
- In the case of employee assesses who close NPS accounts or opt out of NPS, only 40% of the total amount will be tax-exempt.
- When the assessee reaches the age of 60, he or she can withdraw 60% of the entire amount in tax-free income. In addition, if the remainder is used to order an annuity, it is tax-free. The 80CCD(1B) provides you with an excellent chance to reduce your tax liabilities. This will not only reduce your tax obligations in the present, but will also help you create savings that will assist you in your retirement. Consider the following points before you take any action related to Section 80CCD(1B) regarding your NPS account.
Benefits for Existing NPS Account Holder’s
As a benefit to existing NPS subscribers, they are also entitled to the deduction under section 80CCD(1B) as well as the deduction under section 80C for Rs.1.5 lakh. Additionally, they can claim an additional deduction of Rs.50,000 under section 80CCD(IB). Tax deductions of Rs.2 lakhs can be taken in two different ways from NPS contributions: partially in 80C and partially in 80CCD(1B).
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