top of page
Tax Expert

File Your ITR now

FILING ITR Image.png

Deduction under Section 80CCD(1B) of Income Tax


Deductions under Section 80CCD(1B) of Income Tax
Deductions under Section 80CCD(1B) of Income Tax

Are you looking for ways to bring down your taxable income? While 80C deductions are commonly used, other types of deductions are also available. These deductions will bring down your net taxable income, thus reducing your overall tax liability. 

 

Table of Contents

 

Pension schemes generate wealth and ensure a steady income stream at retirement age. When you invest in government pension schemes such as NPS, you can build wealth and enjoy tax benefits at the same time under Section 80CCD(1B).


Let's learn more about tax deductions and benefits u/s 80CCD(1) and 80CCD(1B) in this blog. 


Overview of Deduction Under Section 80CCD(1B) and 80CCD(1)

As per 80CCD(1), a salaried individual in the private and public sectors or a self-employed person can claim deductions based on their contribution to the NPS account. The allowable deduction is 10% of the salary or gross total income for NPS contributions, whichever is lower. The maximum limit for deduction under 80CCD(1) is Rs. 1,50,000.


After all your 80C deductions, you can get an additional Rs—50,000 deduction for your contributions towards the National Pension System (NPS). Together, you can get up to Rs. 2,00,000 tax deductions under sections 80CCD(1) and 80CCD(1B).


For example, invest Rs. 2,00,000 in the PPF scheme and contribute Rs. 70,000 to the NPS. Now, you are eligible for an 80C deduction of Rs. 1,50,000 and Rs. 50,000 under 80CCB(1). Your total tax deduction will be Rs. 2,00,000. 


Is NPS a Good Scheme?

Salaried and self-employed individuals must think of their future while planning their finances. The NPS is a government-sponsored pension scheme that is available to Indian citizens. There are two main benefits of NPS:

  • Tax saving while you work

  • Regular income stream after retirement  


The NPS is an ideal scheme for building wealth for the future. As you pay monthly towards NPS, you will accumulate funds, which will be disbursed to you at specific intervals after retirement. The retirement corpus you build now will fund your future expenses. 


The government's NPS scheme invests your money in multiple investment avenues and securities. The equity market offers better returns for the investment, offering equity exposure with minimal investment requirements. As with any equity-based investment, you will not know the exact amount you can get as a return. However, NPS has been found to provide consistent returns for investors. 

Key points:

  • Diversification: NPS spreads investments across different avenues.

  • Equity Potential: Offers exposure to the equity market for potentially higher returns.

  • Minimal Investment: Requires low initial investment for equity exposure.

  • Consistent Returns: NPS has shown reliability in delivering steady returns over time.


NPS Account Types 

When you contribute to NPS schemes, you must know the different options. Investing wisely for tax savings and wealth building is crucial for better returns. NPS accounts are of two types:


Tier 1 – Pension Account

A pension account provides a steady pension—your monthly income after retirement. Money invested in Tier 1 has a lock-in period. You can get returns only after you reach the age of 60. However, partial withdrawal can be done in emergencies under specific conditions. 


Apart from the above exciting features, a Tier 1 account is eligible for tax deductions proportionate to the amount of money you invest. Under Section 80CC1(D), you can claim a maximum deduction of Rs. 1.5 lakh and you can claim an additional Rs. 50,000 as deduction under Section 80CCD(1B). In total, you can claim a Rs. 2 lakh deduction. 


Tier 2 – Additional Account

As the name implies, it is an additional account for which you can contribute voluntarily. There are no lock-in restrictions, and any number of withdrawals are allowed. However, you must be a Central Government employee to claim a tax deduction. Individuals can contribute to a Tier 2 account, but tax deductions are accessible only to Central Government employees. Only if you already have a Tier 1 account can you open a Tier 2 account.