Monday, February 13, 2012

DEDUCTION UNDER NEW PENSION SCHEME NOT INCLUDED IN 1LAKH SAVING LIMIT


on Monday, February 13, 2012

The New Pension Scheme (NPS) was introduced by the Union Government in 2003. According to the new scheme, employees appointed on or after January 1, 2004 will contribute 10 per cent of their Pay and Dearness Allowance to the Pension Fund Regulatory and Development Authority under the Ministry of Finance. An equal amount will be contributed by the Centre. The scheme is mandatory for Government employees, but optional for other citizens of India. NPS merely declared that tax benefits would be applicable as per the Income Tax Act 1961 as amended from time to time.

THE NEW SECTION 36(1

The Finance Act, 2011 has inserted a new Section 36 (1)(iva) with effect from assessment year 2012-13 to provide that an assessee will get a deduction in respect of contribution towards a pension scheme referred in Section 80CCD of the Act on account of an employee up to 10 per cent of the salary of the employee in the previous year. For this purpose, ‘salary' includes DA, if the terms of ‘employment' so provide, but excludes all other allowances and perquisites.

Currently, contribution made by an employer towards a recognised provident fund, an approved superannuation fund or an approved gratuity fund is allowable as a deduction from business income under Section 36, subject to certain limits.

However contribution made by an employer to the NPS is not allowed as a deduction. The newly inserted clause provides that any sum paid by the assessee as an employer by way of contribution towards the pension scheme on account of an employee to the extent it does not exceed 10 per cent of the salary of the employee in the previous year, shall be allowed as deduction in computing the income under the head ‘Profits and gains of business or profession'.

No doubt, such deduction would have been available under Section 37. The matter, however, is placed beyond doubt by the new Section. It should, however, be noted that deduction would be available only upon actual payment. The term ‘employee' will include all employees including Director-employees. The limit of 10 per cent will apply to each employee individually. The Finance Act has also amended Section 40A (9) for this purpose.

LIMITS ON DEDUCTION

Section 80CCE provides that the aggregate amount of deduction under Section 80CCC and 80CCD shall not exceed Rs 1 lakh. The Finance Act, 2011 provides that contribution made by the Central Government or any other employer to NPS shall be excluded while computing the limit of Rs 1,00,000. The contribution by the employee to the NPS will be subject to the limit of Rs 1,00,000.

At the same time, deduction in respect of contributions by the Central Government or any other employer to NPS available under Section 80CCD (2) will not be subject to the limit specified in Section 80CCE. This provides a leeway for employees to seek a restructuring of the pay. Employers may be willing to include the contribution to the NPS in the pay package and claim 10 per cent of the salary as deduction. Depending on the pay scales, such restructuring may offer a benefit to both the employer and the employee.

Deduction for contribution to the NPS in the hands of the employer and the exclusion of such contributions in the hands of the employees in computing the exemption under Section 80C will mean a morale booster for the employer and the employee.

(The author is a former Chief Commissioner of Income-Tax.)

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  1. My NPS contribution including NPS arrear is (NPS management share 51075 + own share 51075) what relief i can get in income tax this financial year

    ReplyDelete
    Replies
    1. Dear sanjay,

      Employer contribution first is to be added in your income u/s 17 as perquisites than it is to be deducted u/s 80CCD without considering the upper limit of 100000.

      Your contribution is eligible for deduction u/s 80CCD with upper limit of 100000 including 80C and 80CCC investments

      Delete
  2. Well that's nice but how does one fill up the details in SAHAJ (ITR 1) form? That form has only one field under section 80 CCD

    ReplyDelete
  3. Form has 80CCD(1) and 80CCD(2). What to fill in these?

    ReplyDelete
  4. 80CCD(1) employee's contribution
    80CCD(2) employer's contribution

    ReplyDelete
  5. My NPS contribution including NPS arrear is (NPS management share 74099 + own share 71511)for the financial year 2012-13
    My gross Salary is = 416000
    I Have saving of ( LIC + KGID ) = 100000

    what relief i can get in income tax this financial year

    ReplyDelete
    Replies
    1. gross salary includes management share or not

      Delete
  6. should i add nps govt share to my salary for the calculation of total income during the year? for example- basic pay + DA + TA+SDA+NPS(govt share)= total income
    is it a part of my salary ?

    ReplyDelete
    Replies
    1. yes ,govt share should be added as income in salary income. However govt share is also eligible as deduction u/s 80CCD(2).So overall no addition in income.

      Example :

      Salary =20000 DA=10000 Other taxable allowance =10000
      Total Monthly =40000 Yearly 480000
      employer's contribution to NPS (CPF)=10% of 30000=3000= Yearly=Rs 36000/-
      Employee contribution to NPS (CPF) =10% of 30000=3000=Yearly = Rs 36000/-
      Employee invested 30000 in Insurance Policy eligible u/s 80C
      PPF =44000

      Computation of Income
      Income from Salary = 480000/-
      Add : employer's contribution to CPF/NPS = 36000/-
      Gross Total taxable salary (income) (A) = 516000/-

      Less : Deduction u/s 80C
      LIC : 30000
      PPF= : 44000
      employee's share CPF : 36000 (80CCD)
      Total = :110000/-
      (but maxi one lakh) =100000/-
      Less :Employer's contribution to CPF
      deduction u/s 80CCD(2) =36000/-

      Total deduction (B) =136000/-

      Net Taxable Income (A) -(B)=516000-136000=380000/-

      Read more: http://www.simpletaxindia.net/2012/10/deduction-new-pension-scheme-cpf.html#ixzz2DKmJqPhi

      Delete
    2. THANK YOU VERY MUCH

      Delete
  7. Less : Deduction u/s 80C
    LIC : 10000
    PPF= : 44000
    employee's share CPF : 36000 (80CCD (I))

    What will be my tax liability

    ReplyDelete
  8. PPF= : 44000
    Add : employer's contribution to CPF/NPS = 36000/-

    total saving = 90,000

    what will be my tax liability

    ReplyDelete
  9. what to fill in section 80CCD bcz whatever amnt we are giving system generated calculation is nt showng
    plz help
    plz explain brifly my CONTRIBUTION TO NPS =38042
    nd GOVT. CONTRIBUTION =38042
    now
    tell me what to fill in the following

    80 CCC-----??
    80 CCD(EMPLOYEES/SELF EMPLOYEES CONTRIBUTION)-----??
    80 CCD (EMPLOYERS CONTRIBUTION)-------??

    ReplyDelete
    Replies
    1. 80CCC:Nil
      80CCD=38042(employee contribution)
      80CCD(1)=38042(employer contribution)

      Delete