Contributions made by the subscriber in the individual pension account is exempt from tax under Sec 80 CCD(1) upto a limit of Rs.1.5 lakhs. This limit covers the deductions available under section 80C, 80CCC and 80CCD(1). The employer’s contribution up to a limit of 10 percent of the basic salary and dearness allowance is also allowed as deduction under section 80CCD(2) to the employee. Additionally, since FY 2015-16 an additional deduction on investment up to the extent of Rs.50,000 is allowed under a new section 80 CCD (1B).
Example: Consider the case of a person investing in different financial products eligible for tax deduction. Assume he contributes Rs.1 lakh in Provident Fund, Rs. 50,000/- in PPF, Rs.50,000 as repayment of housing loan and Rs. 60,000 in NPS. The best use of tax benefits available shall be as follows:
- Rs.1.50 lakhs for products included under Section 80 C
- Rs.50,000 in Section 80CCD(1B) for the NPS contribution
In other scenario, a subscriber is investing Rs. 1.50 lakhs in NPS and Rs.50,000 in PPF. In such a case, he can avail of the benefit as under:
1.Rs.1.50 lakh (Part of NPS contribution (Rs. 1 lakh) and PPF (Rs.50,000)) under section80 C
2.Rs.50,000/- under Section 80 CCD (1B).
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