InvestorQ : Can all NPS subscribers avail the Rs 2 lakh deduction?
Tanya Mehta made post

Can all NPS subscribers avail the Rs 2 lakh deduction?

3 years ago


Let’s first understand how one can avail of the Rs 2 lakh deduction first. NPS tax benefits are available through three sections of the Income Tax Act, 1961– 80CCD(1), 80CCD(2) and 80CCD(1B).

1. Section 80CCD(1)

Employee contribution up to 10% of basic salary and dearness allowance (DA) up to 1.5 lakh is eligible for tax deduction. This contribution along with Section 80C has 1.5 lakh investment limit for tax deduction. Self-employed individuals can also claim this tax benefit. However, the limit is 10% of their annual income up to maximum of Rs 1.5 lakhs.

2. Section 80CCD(1B)

Additional exemption up to Rs 50,000 in NPS is eligible for income tax deduction. This was introduced in Union Budget 2015.

3. Section 80CCD(2)

This is the employer’s contribution, up to 10% of basic plus DA, which is eligible for deduction under this section above the Rs 1.5 lakh limit in Section 80CCD(1). This is also beneficial for employer as it can claim tax benefit for its contribution by showing it as business expense in the profit and loss account. Self-employed individuals cannot claim this tax benefit.

Now, coming back to your question, the additional Rs 50,000 deduction under Section 80CCD(1B) is only allowed for Tier-I accounts. Hence, only subscribers of Tier-I accounts can avail Rs 2 lakh deduction per financial year.