Section 80CCD: Deduction in respect of contribution to Pension scheme of Central Government

By | February 12, 2016

A new section has been inserted to give the effect for new pension scheme of the Central Government. The benefit of this section is available to all individual employed with Central Government and any other employer on or after 1st Jan., 2004. It is required to every persons who entering the services of the central government on or after 1 Jan., 2004 to contribute 10% of their salary in the pension account and a same amount contribution is made by government in account.

Employer contribution in pension scheme u/s 80CCD is allowable as deduction in the hands of employee would be outside the overall limited of Rs. 1 lakhs.

Further, in any year where any amount is received from the pension account such amount shall be charged to tax as income of that previous year.

Additional deduction for National Pension System contribution:

Clause 17 of the Bill seeks to amend S. 80CCD of the Income-tax Act relating to deduction in respect of contribution to pension scheme of Central Government.

The existing provisions contained in sub-section (1) of S. 80CCD, inter alia, provides that in the case of an individual, employed by the Central Government on or after 1st January, 2004, or being an individual employed by any other employer or any other assessee being an individual who has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, a deduction of such amount not exceeding ten per cent of his salary is allowed.

It is proposed to omit sub-section (1A) and insert a new sub-section (1B) so as to provide that an assessee referred to in sub¬section (1), shall, be allowed an additional deduction in computation of his total income, of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed Rs. 50,000/-. It is also propose to provide that no deduction under this sub-section shall be allowed in respect of the amount on whcih deduction has been claimed and allowed under sub-section (1).

Consequential amendments have been proposed in sub-section (3) and sub-section (4) of S. 80CCD.

These amendments will take effect from 1st April, 2016 and will, accordingly, apply in relation to the assessment year 2016-17 and subsequent assessment years.

Reference:

As Per Section 80CCD, of the Finance Bill, 2015-

Amendment of section 80CCD.

In section 80CCD of the Income-tax Act, with effect from the 1st day of April, 2016,-—

(a)      sub-section (1A) shall be omitted;

(b)      after sub-section (1A), as so omitted the following sub-section shall be inserted, namely:—

“(1B) An assesse referred to in sub-section (1), shall be allowed a deduction in computation of his total income, [in addition to the deduction allowed under sub-section (1)], of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees:

Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1);

(c) in sub-section (3),—

(I)       for the words, brackets and figure, “sub-section (1)”, wherever they occur, the words, brackets, figures and letter “sub-section (1) or sub-section (1B)” shall be substituted;

(II)      for the words “under that sub-section”, the words “under those sub-sections” shall be substituted;

(d) in sub-section (4), for the words, brackets and figure, “sub-section (1)”, the words, brackets, figures and letter “sub-section (1) or sub-section (1B)” shall be substituted.

As Per Section 80CCD, of the Income Tax Act, 1961-

Deduction in respect of contribution to pension scheme of Central Government.

80CCD. (1) Where an assessee, being an individual employed by the Central Government [or any other employer] on or after the 1st day of January, 2004,[or any other assessee, being an individual] has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,—

(a)  in the case of an employee, ten per cent of his salary in the previous year; and

(b)  in any other case, ten per cent of his gross total income in the previous year.

(2) Where, in the case of an assessee referred to in sub-section (1), the Central Government [or any other employer] makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government [or any other employer] as does not exceed ten per cent of his salary in the previous year.

(3) Where any amount standing to the credit of the assessee in his account referred to in sub-section (1), in respect of which a deduction has been allowed under that sub-section or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—

(a)  on account of closure or his opting out of the pension scheme referred to in sub-section (1); or

(b)  as pension received from the annuity plan purchased or taken on such closure or opting out,

the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.

(4) Where any amount paid or deposited by the assessee has been allowed as a deduction under sub-section (1),—

(a)  no rebate with reference to such amount shall be allowed under section 88 for any assessment year ending before the 1st day of April, 2006;

(b)  no deduction with reference to such amount shall be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.

(5) For the purposes of this section, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.

—For the purposes of this section, “salary” includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.

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