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Addition nps contribution by govt for previous yrs

23 August 2020

i am receiving missed out govt contribution for previous years in this financial years which is 10% of my salary for the corresponding previous years. Which could be tax exempted under sec 80ccd2 in corresponding years but in this financial year it is over and above 14% of govt NPS contribution.

My query is can I take exemption under sec 89 by showing this contribution in corresponding years when 10%government contribution was tax exempted under sec 80ccd(2)?

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4 Replies

Ajay (CA Job) (512 Points)
Replied 24 August 2020

Dear Dr. Sundeep

1. Section 89 is applicable to an individual assessee when she/he is in receipt of “salary” in arrears (among others).

2. Salary as per Sec.17(1)(viii) read with Sec.7 of the Income Tax Act, 1961 includes “the contribution made by the Central Govt or any other employer to the account of an employee under the pension scheme referred to in Sec.80CCD”.

So, I feel you can take the relief under Sec.89 in the year of receipt. You have to follow the mode of computation of relief as provided under Rule 21A(2). Also, you may have to furnish Form 10E in the current financial year to the employer as per Sec.192(2A) read with Rule 21AA.

I assume, when you say the “missed out” Govt. contribution received in this financial year, the same was not contributed to your corresponding NPS Tier-I account and hence was not due to you in the earlier years. An indication towards this could be had from the Form 16 issued to you in the relevant preceding years to check whether the same has been included in the salary or not.

Regards

Ajay

DR SUNDEEP NIGAM (DOCTOR) (73 Points)
Replied 24 August 2020

Thanks for such detailed reply.Let me elaborate some thing more. Service was joined in 2011 but NPS contribution started wef from 2015. So no NPS contributed by employee and employer in initial years of service.After audit object due amount of 10% is salary arrear for missed out initial years are being deducted in this financial year and same 10% is being contributed by government which is over and above regular 14% contribution by government.out this only 10% is tax exempted in this financial year.But the arrear amount of 10% is the point of contention ?

Ajay (CA Job) (512 Points)
Replied 25 August 2020

Dear Dr. Sundeep

Even as it may sound unfair to you, while computing the relief under Sec.89 for the current year, you may not be eligible to claim the benefit of Sec.80CCD under the various preceding previous years to which the arrear amount relates by apportioning the same to the corresponding years.

That is to say, what you maybe eligible as relief under Sec.89 in the current year, in effect would be the difference in tax slab rates, if any, for the current year (in which you have received the arrears) and the various preceding previous years, on the amount of employer’s contribution to NPS.

So, you will not be able to claim the deduction under Sec.80CCD corresponding to the years to which the arrear relates, neither for employer contribution nor for employee contribution. This is basically because Sec.80CCD allows deduction for the amount, which is actually paid/deposited by the assessee/employer “during the previous year”. Further, Rule 21A also talks only about considering the arrear amount received while computing the relief u/s 89 and nothing about any “deemed” deductions therefrom. In your case, these amounts were not actually deposited in NPS in the preceding years. A similar issue relating to contribution to PF was discussed in a Kerala High Court Case Kerala Electricity Officers Federation and Others v. Central Board of Direct Taxes [(2005) 198 CTR Ker 625/ 2005 279 ITR 482 Ker].

So for the current year, your eligibility u/s 80CCD remains restricted to the amount contributed by you and your employer, in respect of your salary pertaining to this year alone, subject to a maximum of 10%/14%, as the case maybe.

I am not aware of any other case laws/circulars/notifications favoring your case. So, kindly wait for any other replies or consult a practicing Chartered Accountant.

Note: Form 10E has to be submitted online.

Regards

Ajay

DR SUNDEEP NIGAM (DOCTOR) (73 Points)
Replied 26 August 2020

Thanks a lot sir,one more update NPS account is showing deduction is corresponding years only , amount deducted this year showing July 2013,, August 2013 etc