The Buyt Desk
Section 80CCD of Income Tax Act 1961 helps you in saving for retirement and at the very same time saves your tax as well. It gives you a tax deduction for investing in pension schemes like National Pension System (NPS) and Atal Pension Yojna (APY). This incentive is given so that people are encouraged to save for their retirement years.
What is NPS?
National Pension Scheme is a retirement pension plan. It is regulated by Pension Fund Regulatory and Development Authority(PFRDA). You make a monthly contribution in this pension plan and receive a lump sum when you turn 60. But do note that the corpus that you accumulate will not be returned entirely. When you turn 60 you can withdraw 60% of the amount and with the 40%, you have to buy an annuity plan. This pension program is open to all people working in the public, private, or even the unorganized sector.
Any person from the age of 18 years to 60 years can be added to the National Pension System (NPS). Earlier it was only for government employees, but since 2009 the scheme was opened for those working in the private sector. You can open your account by going to any nearest point of presence bank branch.
What is APY?
The Atal Pension Yojna(APY) is also administered by PFRDA. It is a guaranteed pension scheme for the people working in the unorganised sector. The aim is to provide a financial safety net to those who can’t afford it. The unorganised workforce like gardener, driver, maids who are dependent on daily wages can take advantage of APY to fulfil their financial needs after their retirement. A pension in the range of Rs 1000 to Rs 5000 every month is offered in this scheme. The pension begins after the subscriber has achieved the age of 60 years.
Three deductions under section 80CCD
1) Under sub-section 80CCD (1), salaried employees can avail of tax exemption by depositing up to 10% of their salary and self-employed can deposit up to 20% of their total income in a pension account. They can avail of a maximum deduction of Rs 1.5 lakh. . Atal Pension Yojna is also included in 80CCD 1. This deduction is part of section 80C of the IT Act.
2) NPS also gives you an additional benefit over and above 1.5 lakh. This is subsection 80CCD (1B) under which both salaried employees and self-employed can get an additional tax deduction of Rs 50,000 more on their NPS deposit.
3) Tax deduction can also be claimed on the contribution of the employer to the NPS account. This is subsection 80CCD (2). The contribution of the employer can be up to 10% of the employee’s salary.
