NPS New Pension Scheme – Grab Tax Benefits under Section 80CCD(2)

34 thoughts on “NPS New Pension Scheme – Grab Tax Benefits under Section 80CCD(2)”

1. NPS is the New Pension Scheme launched under the aegis of the PFRDA without any limit for investing to create a retirement fund. It is open to any individual in the Govt or the Pvt Sector. The EPF is a kind of salary deduction that keeps aside part of your earning today, towards the same objective. But there are caps on what amount you can invest.

   Both offer different tax breaks, different liquidity options and need to be annuitized at the time of retirement.

2. Dear Seniors,
   What are the differences between NPS & EPF?

3. employee

4. Under which section 80ccd or 80ccd1b who will chose these section employee or employer

5. The employer can check eligibility and apply through http://www.npscra.nsdl.co.in

6. NPS is portable. Use your PRAN number and inform your new employer to route your contribution into that.

7. 1. 10% of your annual Basic+DA is the max you can invest in a year
   2. 10% is from your own salary (your salary is just restructured, this is not an additional contribution by the employer)
   3. Employer will need to register with NPS for all its employees. Banks are not involved in maintaining NPS accounts but some banks do act as POS (distributor) for NPS accounts.
   4. Redemption before starting annuity – You can redeem up to 20% max and the rest (at least 80%) will need to be used to buy an annuity plan from a pension management company.
   5. Death before starting annuity – The entire fund would be paid to the nominee/legal heir of the subscriber. No annuity needs to be purchased.

8. Manish, there is no additional contribution from the employer in most cases (unless there is a salary revision through increase in your pay funneled into NPS). It is your own salary that is restructured such that a max of 10% of Basic + DA is contributed into the NPS account. This is best done through your employer who (like in the case of PF) will need to register for NPS. Employer also gets the benefit of treating this contribution (through your salary’s new NPS component) as a business expense deduction under section 80CCE.

   Hope this is clear now. Let us know if you still need any further clarification.

9. Dear Team,
   Thanks for your response. But regarding my first query, I am still not clear.

   “Does the employer’s contribution comes from employee’s salary itself (like 10% of basic) thereby reducing the employee’s salary or does employer contributes on its own?

   Is the total contribution (Employee + Employers) Contribution, both being from Employee’s salary?

   Thanks

10. Hi Manish,

    1. It is generally a re-structuring of your existing salary, however it depends completely on the employer.

    2. Yes, your employer needs to ‘sign up’ with NPS to be able to activate Tier 1 for their employees. If you enroll directly, it is not the same as through your employer.

    Hope this addresses your queries.

11. Hi..after reading your article I am bit confused. You mentioned that “If you are salaried, when you sign up for the NPS, your employer contributes 10% of your basic salary* (including Dearness Allowance – DA, if any) towards your National Pension Scheme account. This is done by re-structuring your income.”

    I have below questions:
    1. Does the employer contributes from employee’s salary itself (like 10% of basic) thereby reducing the employee’s salary or does employer contributes on its own? After reading your article I understand that it works as below:
    Employer’s contribution – Contributed from Employee’s Salary itself
    Employee’s Contribution – Ofcourse which employee contributes from salary.

    So total contribution is (Employee + Employers) Contribution, both being from Employee’s salary.

    2. You also mentioned – “Once you sign up for the NPS Tier 1 account through your employer, your employer will calculate 10% of your Basic and then show it as contribution to NPS.”

    “through your employer” – Is this some different process of enrollment?
    Can’t we just enroll from https://enps.nsdl.com/ website, generate the PRAN and share it with employer to get this 80CCD(2) benefit?

    Request you to kindly clarify.

    Regards,
    Manish

12. No, it is the employer’s choice. However you can start you own account separately even if the employer does not participate.

13. Hi, I am doctor working in a private hospital. They refused to put 10% of my basic pay into the NPS under section 80CCD(2) saying they don’t have a policy of doing so. Can I do something about this?

14. No, army personnel are excluded.

15. Hi
    Can u please help me with the fact that whether Army Personnel are eligible for this deduction U/s 80 CCD (2) or not.

16. Naresh, please read it as a deduction, i.e. declared first and then deducted under the relevant section.

17. You have mentioned that “Such an amount contributed by your employer is NOT INCLUDED in your income for tax computation, so NO INCOME TAX IS PAYABLE by you on that amount!”
    If an employer by restructuring your salary contribute 10% of basic salary in NPS tier I will the amount be first included in taxable salary and then give deduction u/s 80 CCD (2) for contribution made by employer up to 10 % of your basic salary in case of private sector employees.

18. Under Section 80CCD(2) – with employer’s contribution. Maximum amount is lower of (a) amount deposited by your employer in your account or (b) 10% of salary.

19. Sir,
    I am working in university and claiming tax benefit under Section 80C for 1.5 LAKHS and in Section 80CCD (1B) additional 50,000/- for NPS contribution from my side. For the year the employers contribution for NPS is Rs 92,164/-. Can I claim the tax deduction under 80CCD (2) for maximum amount? Please clarify

20. Maximum amount allowed as deduction under section 80CCD (2) is lower of (a) amount deposited by your employer in your account or (b) 10% of salary.

21. Hi,

    1. Is there such limit of 1.5L on 80CCD(2)?
    Page#33 on IncomeTax circular http://www.incometaxindia.gov.in/Communications/Circular/Circular20_2015.pdf doesn’t mention that. Please help clarify.

    2. 40% contributed to purchase annuity is not-taxable, rest 60% is taxable. Please refer below and clarify.

    https://india.gov.in/spotlight/national-pension-system-retirement-plan-all?#nps5

22. Yes, employer’s contribution up to 10% of basic plus DA is eligible for deduction under 80CCD(2) over and above the Rs 1.5 lakh limit in Sec 80CCD(1), up to 50k.

23. So Under Section 80C we Can get 1.5 LAKHS and in Section 80CCD (1B) additional 50,000/-. So that makes it 2 lakhs.

    after that If my Employer contributes to My NPS account 80 CCD (2) , Then will I get additional discount excluding the 2lakhs mentioned above?

24. Under Section 80CCD(1) – contribute 10% of Basic+DA, max 1.5 lakhs as part of 80C.
    Under Section 80CCD(1b) – addl. deduction up to Rs. 0.50 lakhs
    Under Section 80CCD(2) – with employer’s contribution, deduction up to Rs. 1.50 lakhs

25. Earlier it was sub-section 1A. Now it is a new sub-section 1B. It is an additional deduction that increases the overall limit from Rs. 1 lakh to Rs. 1.50 lakhs.

    So the total deduction that can be claimed is Rs. 2 lakhs under 80C and 80CCD.

26. Savera, this is a good and common question and there is some confusion around it.

    Corporate can get their employees to subscribe through Tier 1.

    There are three variations of contributions from employer and employee:

    – Equal contributions by employer and employee
    – Unequal contribution by the employer and the employee
    – Contribution from either the employer or the employee

    A Corporate subscriber can also voluntarily contribute in their Tier I through their associated POP. However, contribution in Tier II account can be done through any POP. A corporate subscriber can open both Tier I and Tier II account simultaneously at the time of initial registration or can activate Tier II account subsequently through the associated POP. The investment option for the Tier-II account needs to be exercised by the subscriber, which can be different from Tier-I account.

    However please remember that you total tax benefit will be between both put together. The employer’s Contribution to NPS upto 10% of basic plus DA is allowed deduction under section 80CCD(2) and excluded from the limit of Rs.1.5 lakh.

    Regards.

27. Please Let me know If an Employee can specify to his/her employer , as to which Tier(Tier-I or Tier-II) of his NPS account the Employer Contribution to NPS has to go? Or is it mandatorily always Tier-1 ?

28. No, Raju. The employer needs to be involved.

29. No, Raju. The employer needs to be involved.

30. Can an individual invest in NPS without involving the employer and avail benefit under section 80CCD

31. Sunil, 13% can indeed be a mix of PF and NPS. But we must point out 2-3 things here. Assuming you have at least 15 years to go for your retirement, you MUST take the benefit of equity to beat inflation. That is the thought in the “Income till 100” article as well. In fact lower your age, higher should be your equity component.

    Now NPS has a maximum share of 50% in Equity and PPF has none. How will your money grow enough to beat inflation?

    Not just that, depending on your salary today and later, your NPS and PPF put together may not reach 13%.

    So Sunil, we suggest a more equity-heavy mix for retirement planning unless you are a risk-averse person and want to play it completely safe.

    On information that you want on NPS, we will be posting new articles on it shortly.

32. Sunil, 13% can indeed be a mix of PF and NPS. But we must point out 2-3 things here. Assuming you have at least 15 years to go for your retirement, you MUST take the benefit of equity to beat inflation. That is the thought in the “Income till 100” article as well. In fact lower your age, higher should be your equity component.

    Now NPS has a maximum share of 50% in Equity and PPF has none. How will your money grow enough to beat inflation?

    Not just that, depending on your salary today and later, your NPS and PPF put together may not reach 13%.

    So Sunil, we suggest a more equity-heavy mix for retirement planning unless you are a risk-averse person and want to play it completely safe.

33. Hello, thanks for yet another interesting article. i have few questions:

    1.In your blog http://www.mintwise.com/earn-income-till-100/, you have explained that we must plan at least 13% of annual income for Retirement. And in the blog
    https://www.mintwise.com/blog/7-reasons-no-retirement-planning/
    you have explained by PF alone is not enough. for retirement planning can this 13% be a mix of NPS and PF i.e., i want to invest little in Retirement due to other financial goals.
    2. What are the different products in the NPS? do they have lock in period? any good blog that can help choose which NPS plan is better?

    Best Regards,
    Sunil

34. Hello, thanks for yet another interesting article. i have few questions:

    1.In your blog http://www.mintwise.com/earn-income-till-100/, you have explained that we must plan at least 13% of annual income for Retirement. And in the blog
    https://www.mintwise.com/blog/7-reasons-no-retirement-planning/
    you have explained by PF alone is not enough. for retirement planning can this 13% be a mix of NPS and PF i.e., i want to invest little in Retirement due to other financial goals.
    2. What are the different products in the NPS? do they have lock in period? any good blog that can help choose which NPS plan is better?

    Best Regards,
    Sunil

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