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Doubt regarding extra 50 thousands in nps scheme

09 October 2015

my query is as under.

I am a government employee and already have NPS account. my employer deducts 10% from my salary in NPS scheme.

as per new rules we can invest additional 50 Thousand in NPS Scheme. I want to know whether these 10% deductions made by employer can be part of this additional NPS? and i can save rupees 1.50 lac in other components in 80C section .

Thank you.

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ankit gupta (CA IN PRACTICE) (104 Points)
Replied 11 January 2016

As per Income Tax Law, employer's contribution is firstly added in gross salary and then contribution of employer as well as employee is added to calculate deduction u/s 80CCD. Section 80 CCD (1) deals with employee's contribution and 80 CCD (2) deals with employer's contribution.

Earlier, maximum deduction in subsection (1) for employee's contribution was limited to lower of 10% of salary and Rs. 1,00,000.

However, since AY 2016-17, ceiling of Rs. 1,00,000/- for employee's contribution has been done away thus leaving maximum deduction limit to 10% of salary.

Now, a new deduction upto maximum of Rs. 50,000/- is also given for employee's contribution u/s 80 CCD(1B). Deduction under sub section (1B) is available over and above subsection (1) if employee's contribution exceeds 10% of salary.

In subsection (2), maximum deduction against government contribution is limited to 10% of salary.

As per section 80 CCE, total of deductions under 80C, 80CCC and 80CCD(1) cannot exceed Rs. 1,50,000 in a given financial year since AY 2016-17. Deduction for Govt. contribution in NPS is not covered by limit of Rs. 1,50,000/- given in section 80CCE.

Further, if employee's contibution in NPS u/s 80 CCD(1) is below Rs. 1,50,000/-, than he may avail deduction u/s 80C for remaining amount. Additional contribution in excess of 10% of salary made u/s 80 CCD(1B) is not included in maximum limit of Rs. 1,50,000/-.

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