DCPS Contribution

NPS has two Tiers – 1 and 2.

NPS Tier 1 is the long term investment, which has restricted withdrawals and meant primarily for retirement planning. On maturity, you can withdraw maximum of 60% of corpus as lumpsum and rest has to be used for annuity purchase.

NPS Tier 2 is for managing short to medium term investment. You can invest and withdraw anytime as per your wish. This is an optional feature and you are asked if you need Tier 2 account while opening NPS.

All the tax benefit related to NPS is available to investment in NPS Tier 1 account only.

NPS tax benefits are available through 3 sections – 80CCD(1), 80CCD(2) and 80CCD(1B). We discuss each below:

1. Section 80CCD(1)

Employee contribution up to 10% of basic salary and dearness allowance (DA) up to 1.5 lakh is eligible for tax deduction. [This contribution along with Sec 80C has 1.5 Lakh investment limit for tax deduction]. Self employed can also claim this tax benefit. However the limit is 10% of their annual income up to maximum of Rs 1.5 Lakhs.

2. Section 80CCD(1B)

Additional exemption up to Rs 50,000 in NPS is eligible for income tax deduction. This was introduced in Budget 2015.

3. Section 80CCD(2)

Employer’s contribution up to 10% of basic plus DA is eligible for deduction under this section above the Rs 1.5 lakh limit in Sec 80CCD(1). This is also beneficial for employer as it can claim tax benefit for its contribution by showing it as business expense in the profit and loss account. Self employed cannot claim this tax benefit.

so employee contribution can be taken as deduction u/s 80CCD(1),i(b) upto 1.5 lakhs and employer contribution can be taken u/s 80CCD(2) above 1.5 lakhs mentioned u/s 80CCD(1)

DCPS is  Defined Contribution Pension Scheme It is nothing but National Pension scheme

The following link gives you the insight into that

https://pensionersportal.gov.in/salient%20features-f.asp

Dear Mopidevi Bharadwaja Sir.

Please clarify whether tax benefit can be taken u/s 80CCD(1), 80CCD(1B) & 80CCD(2) for DCPS also.

Deduction for Defined Contribution Pension Scheme (State employees, e.g. Maharashtra DCPS):

• Where the State's DCPS has migrated into NPS (Maharashtra merged DCPS into NPS from 2015 onwards, with balances transferred to PRAN accounts):

– employee contribution: Sec 80CCD(1), within the Rs 1.5 lakh 80C limit, plus Sec 80CCD(1B) up to Rs 50,000 (old regime only)

– employer (Government) contribution: Sec 80CCD(2) up to 14% of salary for government employees (both regimes). The employer's contribution must first be included in salary (Sec 17(1)(viii)) and then deducted.

• If a State still runs a separate scheme not notified under Sec 80CCD, the deduction is doubtful. Check whether contributions are credited to an NPS PRAN through NSDL/Protean CRA.

• Form 16 should show the 80CCD(2) deduction. Claim it in the ITR under Chapter VI-A even if Form 16 omits it, with the salary slip or PRAN statement as proof.

• The aggregate employer contribution to NPS, PF and superannuation above Rs 7.5 lakh is a taxable perquisite (Sec 17(2)(vii)).