Income Tax Rules on Employer’s Contribution to NPS: How it is Calculated

The employee’s own contribution to his NPS account is eligible for deduction under section 80CCD(1) and not under section 80C. The limit of Rs 1.50 lakh is prescribed under section 80CCE which covers all items eligible for deduction under section 80C, 80CCC and 80CCD(1).

In respect of employer’s contribution to the employee’s NPS account, deduction under section 80CCD(2) is available to the employee. This is over and above the deduction of Rs. 1.50 is available under section 80C, 80CCC and 80CCD(1). Deduction up to 10% of basic pay and dearness allowance of the employee is available under section 80CCD(2). Higher deduction of 14% of contribution as a percentage of basic pay is available for Central and State Government employees. While there is no overall limit of deduction in respect of employer’s contribution to the NPS account of an employee under section 80CCD(2), section 17(2) of the Income-tax Act provides that for the employee’s provident fund, the employer’s contribution In case the total contribution, to the National Pension System and superannuation exceeds seven lakh fifty thousand in a year, the excess in the hands of the employee shall be taxed as perquisite. So effectively an employee can claim deduction up to Rs. 7.50 lakh for employer contribution to his NPS account in a year.

Additional deduction of up to Rs 1.50 lakh from self NPS AccountAll taxpayers are eligible for an additional exclusive deduction of up to 50,000 under section 80CCD (1B). So, overall on . can contribute up to 2 lakh in your NPS account and get the benefit of tax deduction.

Therefore, if the deduction of your own contribution by the employer under section 80C and 80CCC along with other eligible items exceeds the limit of one lakh fifty thousand rupees, then you can take the deduction in respect of excess amount up to your own contribution to your NPS account. can claim. u/s 80CCD(1B) without making any additional contribution to your NPS account.

Balwant Jain is a tax and investment specialist and can be reached on Twitter at jainbalwant@gmail.com and @jainbalwant.