Section 80CCD – Employer contribution no limit (NPS)
The Income Tax Act has yet another deduction that you can claim and save more of your income from tax deduction. Section 80CCD offers that by contributing a part of your income towards the new pension fund/scheme (notified pension scheme or NPS), you can exempt up to 10% of salary. NPS is a defined contribution based pension system launched by Government of India with effect from Jan 1, 2004. The deduction shall be allowed within the aggregate upper limit of Rs.1,00,000 considering deductions u/s 80C, 80CCC and 80CCD. An assessee or any individual employed under the central government or other employer on or after Jan 1, 2004 is eligible to contribute funds in the pension scheme. To claim benefit under this section, the assessee or individual as mentioned above should have deposited or paid an amount in his account under the new pension scheme notified by the central govearnment. Self employed persons are also eligible to contribute under this section and claim deduction. Employee contribution towards the notified pension scheme is limited to the extent of 10% of salary.
Besides, the employer is also allowed to contribute under this scheme. Section 80ccd states that contribution made by the employer to a notified pension scheme is exempt from tax to the extent of 10% of salary .The best part under this scheme is that from the assessment year 2012-13, the employer’s contribution are not included in the overall limit of Rs.1, 00,000 provided the contribution does not exceed 10 percent of the salary. As per the new budget proposal, the contribution made by an employer towards the pension scheme shall not be counted under the section 80C but under the section 80CCD.Earlier, this contribution was a part of the section 80C deduction under the provisions which a total of Rs.1, 00,000 from the annual income can be made tax-free tax. The maximum limit of Rs.1,00,000 does not apply to the Employer’s contribution towards NPS.
This scheme will aid further tax savings and both employee and employer can avail benefits under this section. Employee contribution provides tax deduction on their salary; salary includes dearness allowance but excludes all other allowance and basics. Employers can show their contribution as a business expense from the next financial year and enjoy the added advantage of tax reduction for the firm.