Can the employer’s contribution towards NPS be considered for claiming an additional deduction under Section 80CCD(1B)? My employer contributes NPS 10% of basic and DA. Can I claim this under Section 80CCD(1B)?
Answer: Deduction for NPS contribution is available under Section 80 CCD. Under section 80 CCD(1) the contribution of the taxpayer is eligible for deduction up to ₹1.50 lakh as per the limits laid down under Section 80 CCE which also covers the various items of section 80 C and 80 CCC. The deduction for NPS is subject to restriction of 10% of the salary for salaried and for others, it is capped at 20% of the gross total income.
In addition to the above Section 80 CCD (1B) allows you an additional deduction of ₹ 50,000/- for contributions made by you to NPS account over and above the one available under Section 80 CCD(1). The restriction of 10% of salary or 20% of gross total income is not applicable for contributions made under Section 80 CCD(1B).
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The employer’s contribution to the NPS account is not covered in the above limit of ₹1.50 lakh. So as long as the employer’s contribution is within the limit of 10% of the salary, the whole of the amount of the employer’s contribution is available for deduction within an overall limit of ₹7.50 lakh for the employer’s contribution made towards the employee provident fund, NPS and Superannuation taken together in a year.
Please note that the employer can contribute toward your provident fund as well as the NPS account at the same time.
The amount of the employer’s contribution is first added to your income and the same will be deductible under Section 80CCD(2). This can be used as an excellent tax planning tool for the high-salary earner as long as the aggregate contribution to EPF, NPS, and superannuation does not exceed ₹7.50 lakh.
Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and on @jainbalwant on Twitter.
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Updated: 10 Oct 2023, 07:48 AM IST