Saturday, October 13, 2012

DEDUCTION NEW PENSION SCHEME CPF SECTION 80CCD


on Saturday, October 13, 2012

Section 80CCD allows an employee, being an individual employed by the Central Government or any other employer, on or after the 1-1-2004, a deduction of an amount paid or deposited out of his income chargeable to tax under a pension scheme as notified or as may be notified by the Central Government, vide Notification F. N. 5/7/2003- ECB&PR, dated 22-12-2003.

However, the deduction shall not exceed an amount equal to 10% of his salary (includes Dearness Allowance but excludes all other allowance and perquisites).

Further where in the case of an employee receives any contribution in the said pension scheme from the Central Government or any other employer then the employee shall be allowed a deduction from his total income of the whole amount contributed by the Central Government or any other employer subject to limit of 10% of his salary of the previous year.

Taxation at the Time of out of pension scheme and treatment of Annuity :if any amount is standing to the credit of the employee in the pension scheme referred above and deduction has been allowed as stated above and the employee or his nominee receives this amount together with the amount accrued thereon, due to the reason of 

(i) Closure or opting out of the pension scheme or

(ii) Pension received from the annuity plan purchased and taken on such closure or opting out

then the amount so received during the FYs shall be the income of the employee or his nominee for that Financial Year and accordingly will be charged to tax.

Where any amount paid or deposited by the employee has been taken into account for the purposes of this section, a deduction with reference to such amount shall not be allowed under section 80C.

Further it has been specified that w.r.e.f 1-4-2009 any amount received by the employee from the new pension scheme shall be deemed not to have received in the previous year if such amount is used for purchasing an annuity plan in the previous year.

Employee Contribution :It is emphasized that as per the section 80CCE the aggregate amount of deduction under sections 80C, 80CCC and Section 80CCD(1) shall not exceed Rs. 1,00,000/- .

Employer's contribution : However the contribution made by the Central Government or any other employee to a pension scheme u/s 80CCD(2) shall be excluded from the limit of Rs.1,00,000/- provided under this Section.

Contribution by Govt /Employer to New Pension scheme /Contributed Pension scheme is taxable in the hand of Employee as perquisites :. Any contribution made by the Central Government or any other employer to the account of the employee under the New Pension Scheme as notified vide Notification F.N. 5/7/2003- ECB&PR, dated 22- 12-2003 referred to in section 80CCD above shall also be  included in the salary 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/-

13 comments: Post Yours! Read Comment Policy ▼
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  1. thanks Simple Tax India for updates .

    ReplyDelete
  2. Thanks ! Just wanted to know - Can an organization which is registered with RPFC for Family Pension Fund enroll in this scheme for the benefit of its employees or this is only for central govt. employees or companies where PF Act is not applicable ?

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  3. Very Good example, it cleared all doubts

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  4. Best article and calculation on nps till date so simplyfied

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  5. Thanx......... the example....... really cleared my doubt......

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  6. hi can any body tell me that if i deposit 1000.00 per month in accordance with NPS then how much i will get the net amount after 30 years

    Please help me to know this...

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  7. This comment has been removed by the author.

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

    total saving = 90,000

    what will be my tax liability

    ReplyDelete
  9. need small clarification in jan 2012 i have retired my air force on voluntary scheme and i got my gratuity and commutation in the month of august and my pension started in the month of august.
    reemployed in wipro and coming under 30% slab suggest me i need to declare the pension as well lumpsum in this year or not.67405 any exemption for Ex-serviemen.
    mob: 9686567405

    ReplyDelete
  10. But what is the use? A tax payer has not gained from this form of taxation. If the deduction is allowed, they why it should be included under the head salary? It makes no difference to the taxable income. I will be happy if you can clarify on this point

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  11. The CIRCULAR NO. 9/2008, DATED 29-9-2008 says "Any contribution made, in excess of 10 per cent, by the Central Government or any other employer to the account of the employee under the New Pension Scheme as notified vide Notification No. F.N. 5/7/2003-ECB&PR, dated 22-12-2003 (enclosed as Annexure-VA) and referred to in section 80CCD [para 5.4(C) of this Circular] shall also be included in the salary income."

    Shall we take the excess of 10% into account or the entire 10% in to account? The Perquisites also does not include the contribution by the employer to NPS. It says any contribution "By an employer (including a company) to an employee, who is not covered by (i) or (ii) above and whose income under the head ‘Salaries’ (whether due from or paid or allowed by one or more employers), exclusive of the value of all benefits and amenities not provided by way of monetary payment, exceeds Rs. 50,000."
    Does NPS, then fall under value of benefits and amenities as said in the circular.
    Please clarify me on this issue

    ReplyDelete
    Replies
    1. you should refer latest circular 8/2013
      http://www.simpletaxindia.net/2013/10/how-to-calculate-tds-on-salary-fy-2013_12.html

      According to which full contribution by employer is to be added in salary income not amount in excess of 10 %

      Delete