Know All About Section 80 CCD (1B) Deduction

Everyone wears a disgruntled look when it comes to levying taxes on salaries. There are several options to consider to avail of tax deductions. Depending on the salary you draw and your immediate requirements, you can invest a specific amount in various schemes which will serve you well in your old age. You can invest in a national savings certificate, medical insurance, life insurance, public provident fund and even claim deductions by applying for home loans. You should make practical investments which are aligned perfectly with your revenue objectives. Don’t jump the gun and invest a huge amount in something in order to free yourself from the payment of taxes. It is always wise to spend some time studying the various options, discuss them with your near ones and then make the appropriate choice. You can also seek expert opinion from your finance department or even your own personal chartered accountant if you have one. Finance and investment professionals will guide you in the right direction and assist you in making realistic investments. On April 1, 2016, Section 80 CCD 1B was brought under the domain of Section 80 CCD.

Did you know? There are more than 4 crore Indians who have enrolled for the Atal pension yojana.

Income Tax Deductions Under Sec 80 CCD(1B)

All working professionals, self-employed individuals and even non-resident Indians are eligible to claim additional tax deductions other than what they claim under Section 80CCD (1). The total deduction amount they can claim is ₹50000, but this is possible only if they make a contribution towards the national pension scheme or the Atal pension yojana.

Plan Your Taxes to Save Your Income

There are numerous investment options to choose from when it comes to saving your income tax. Many individuals shy away from keeping their funds locked on a long-term basis, but the government has introduced many tax-saving instruments to choose from. Some of these are listed in the table given below, along with the tenure of investment and the percentage of returns:

Also Read: Guide For Uploading TDS Returns On The Income Tax Portal

About National Pension Scheme (NPS)

The Central government of India introduced the national pension scheme towards the end of December 2003. This was introduced to enable Indian citizens to make a practical investment during their professional life, serving them well during their retirement. It has been acknowledged as one of the most low-cost investments which furnish you with rewarding benefits later in life. Under this scheme, you can avail of the entire amount upon completing 60 years of age and if the total invested sum is less than or equal to ₹5 lakhs. The minimum age requirement to invest in NPS is 18 and the maximum is 65 years. All the deposits made by individuals in this scheme are invested in the equity market. One should bear in mind that since the investments are linked to the equity market, this scheme does not assure you of a fixed amount upon maturity. However, the returns are attractive and surpass the returns of a majority of other schemes. Many employers in mutual agreement with their employees transfer their provident fund sums to the national pension scheme.

The Two Types of NPS Accounts You Should Know

There are two different categories of NPS accounts, namely, Tier I and Tier II. Given below is a table that lists the various differences between these two NPS accounts.

Also Read: How To Save Income Tax on Income From Salary For Individuals

What Is Section 80 CCD (1B)?

Section 80 CCD (1B) allows self-employed individuals and employees the right to claim an additional tax deduction that amounts to ₹50000 in addition to claiming deductions under Section 80 CCD (1). This additional tax deduction can be claimed only if they invest in the national pension scheme (NPS) or even in the Atal pension yojana (APJ). Individuals can thus claim a total of ₹2 lakhs in tax deductions, i.e., ₹1.5 lakhs under Section 80 CCD (1) and ₹50000 under Section 80 CCD (1B). Investments made in the national pension scheme have proved to be more rewarding because of the higher percentage rate than when compared to investments in the public provident fund.

Things to note while claiming deductions under Section 80CCD(1B)

• Individuals have to consider some very crucial aspects when they try to claim deductions under Section 80 CCD (1B). Some of these are given below:
• Individuals who contribute to the Tier I account of the national pension scheme are eligible to claim a tax deduction of ₹50000.
• Individuals who attempt to claim tax deductions of ₹50000 have first to provide the correct documents that validate their investment
• The tax deduction of ₹50000 applies to both self-employed Indians as well as Indian employees
• By investing in the national pension scheme, individuals benefit of a total tax deduction of ₹2 lakhs
• In the event that you, as an investor in the Tier I scheme of NPS, die, then your nominee has the right to close the said account. Your nominee can avail of the total corpus and is not liable for any tax liability
• You can make partial withdrawals, but then only 25% of what you invest or contribute gets tax exemption
• In case you choose to close the account for personal reasons, 40% of the total corpus gets tax exemption
• Once you reach the age of 60 years and wish to withdraw, e.g., 60% of the total corpus invested, you do not have to pay tax on that money. If you purchase an annuity plan with the balance 40% amount, you don’t have to pay tax on that as well. In simple words, if you invest in a financial instrument that will furnish you with a regular income for your entire life, you will benefit from tax exemption on that amount.

Benefits for Existing NPS Subscribers

The benefits for existing NPS subscribers are varied and rewarding. Under Section 80C, individuals who have contributed to Tier I of the NPS can claim tax deductions amounting to ₹1.5 lakhs in one financial year. Under Section 80 CCD (1B), individuals who have invested in Tier 1 of NPS can claim an additional ₹50000 as a tax deduction. In the case of salaried individuals, tax benefits up to 10% of the salary (Basic DA) can be claimed under Section 80 CCD (1). Once you attain 60 years of age, you can withdraw the Tier I amount. 60% of this amount is non-taxable and can make the balance 40% also tax-free if you invest wisely in any annuity instrument.

Also Read: Understanding Income Tax Allowances and Allowed Deductions for Salaried Individuals

Conclusion:

The contents of this article give you an understanding of Section 80 CCD (1B) under the income tax act. This article helps you gain an insight into the many benefits of investing in national pension scheme schemes and even the Atal pension yojana. Investors who contribute to Tier I of the NPS scheme stand to enjoy many tax benefits. You can study all the terms which are aligned with the NPS scheme to familiarise yourself with the many benefits that come bundled with such an investment. 

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