A deduction means the amount is reduced from your taxable income. The new amount post deduction becomes your taxable income. Deductions reduce tax payable and help you save more. So, what is section 80CCD and what are the deductions allowed under section 80CCD of the Indian Income Tax Act?
Section 80CCD of the Income Tax Act, 1961 allows you to claim a deduction of the amounts that you invest in the National Pension System (NPS) and the Atal Pension Yojana (APY). You can claim a deduction of a maximum amount of Rs.2 lakhs, u/s 80CCD, in a given financial year. The Rs.2 lakhs has sub-caps of Rs.1.5 lakhs under section 80CCD (1) and Rs.50,000 under section 80CCD(1B) including investments made under Section 80C as well.
Section 80CCD is further divided into 2 subsections, namely, section 80CCD (1) and section 80CCD (2). This subdivision helps differentiate contributions made by you from the contributions made by your employer.
Under this subsection, you can claim a deduction of up to Rs.1.5lakhs in a given financial year. The contributions may be made by you, your employer or even the government. The contributions may be made either to NPS or APY.
NPS is an avenue to make long-term savings and plan for cash flows post-retirement through sustainable, safe and regulated market-linked returns. NPS is managed by Pension Fund Regulatory and Development Authority (PFRDA), a body set up by an act of the Indian parliament.
NPS or the New Pension System has been a great long-term investment option for dedicated retirement savings. Here are the rules and conditions for investing in and withdrawals from NPS:
Know More About - NPS withdrawal
NPS accounts are of two 2 types-Tier 1 and Tier 2. Tier 1 accounts don’t permit withdrawals and have tax benefits. Tier 1 accounts are used for corpus creation while planning for pension and retirement.
The terms and conditions applicable to investments done under section 80CCD are:
i. You may claim deduction irrespective of whether you are salaried or self-employed
ii. Investment is optional for private sector employees and self-employed individuals
iii. The maximum limit for deduction is Rs.2 lakhs. This limit includes the additional deduction under sub-section 1B
iv. If you claim a deduction under section 80CCD, you cannot claim the same again under section 80C
v. The combined amount to be claimed as deduction under both sections 80C and 80CCD cannot exceed Rs.2lakhs
vi. Monthly pension payments are liable for taxation
vii. The deduction is to be claimed when you file your income tax returns each year.
There are a host of other options as well that you may consider to invest your money and also save on taxes. A few are listed below:
The following features make ULIPs your preferred investment choice for retirement:
- Invest up to 99 years of age in ULIPs like Invest 4G
- Build corpus till 60 and draw tax-free pension afterwards
- Invest in a diversified portfolio of equity and debt funds
- Manage your asset mix with automated strategies to mitigate equity market risk
- Use ULIPs to protect your children’s goals with the premium protection option
- Guaranteed maturity benefit
- Bonus additions for long-term investors
- Regular income pay-out for the selected period to help maintain liquidity
- Premium protection option to secure the goal in the case of important goals like a child’s higher education goal
Investments should be carefully planned so that you benefit from the growth of the fund as well as money saved due to tax benefits. Look out for instruments that give you tax benefits on investment and also on maturity. Have a balance of different types of such investments in your portfolio so that you make an overall gain from the process.Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised to exercise their caution and not to rely on the contents of the article as conclusive in nature. Readers should research further or consult an expert in this regard.