written by | June 28, 2022

Know All About Section 80 CCD (1B) Deduction

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Table of Content


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:

Name of the investment scheme

Tenure of investment in years

Percentage (%) returns

National pension scheme (NPS)

Until retirement

12-14%

Equity-linked savings schemes (ELSS)

3 years

15-18%

Public provident fund (PPF)

15 years

7-8%

National savings certificate

5 years

7-8%

Bank deposit

5 years

6-7%

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.

TIER I

TIER II

Is a primary account and furnishes you with a permanent retirement account number (PRAN).

You can avail of this only after you have a Tier I account.

Eligibility criteria include Indian citizens. They should be between the age range of 18 and 65 years.

All the members of Tier I are eligible to invest in Tier II.

You have to make at least one contribution in every financial year.

No rigid rules apply to the contribution. You have the freedom to make or not make a contribution in a specific year.

The amount required for opening Tier I is 500.

The amount required for opening Tier II is 1000.

The minimum amount for the following contribution is 500.

The minimum amount for the following contribution is ₹250.

The total amount you invest stays locked in this scheme until you reach your retirement age of 60 years. You cannot exit this scheme before its date of maturity. You can make withdrawals only of small amounts upon fulfilment of specific conditions.

This scheme is free of a lock-in timeframe. The withdrawal rules are not as rigid as the ones which apply to TIER I. You can withdraw at your convenience.

Provides you with tax as well as retirement benefits.

Does not tax benefits. You cannot claim tax deductions under this scheme.

Applicable charges are the same for Tier I and Tier II.

Applicable charges are the same for Tier I and Tier II.

Investments are made in assets like equities, real estate, commodities, bonds, and even currencies.

Investments are made in assets like equities, real estate, commodities, bonds, and even currencies. Investments are also made in government security schemes, real estate investment trusts, alternative investment funds as well as commercial mortgage-backed securities.

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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FAQs

Q: What is the meaning of the national pension scheme 80 CCD (1B)?

Ans:

This scheme is made available only to those who subscribe to the national pension scheme under Section 80 CCD (1B).  It enables the said subscribers to claim a tax deduction of 50000.

Q: Explain the 80 CCD (1B) deduction?

Ans:

Individuals who contribute to the national pension scheme can benefit from a tax deduction of 50000. This is in addition to the tax deduction claims they make under Section 80 CCD (1).

Q: What is NPS 80 CCD (1B)?

Ans:

Under Section NPS 80 CCD (1B), self-employed individuals, as well as employees, can avail of tax deductions of 50000 after they contribute to the national pension scheme or to the Atal pension yojana.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.