Income Tax Deductions U/s 80 CCD (1B)| Payment of income tax is required for every Indian citizen
who has an income tax, in accordance with the rules and regulations of the Income Tax Act1961. But
this does not mean that you have to pay tax on all the income you earn. . in this financial year. There
are several provisions in the Income Tax Act that allow you to claim deductions for certain investments
and expenses.
Plan your taxes to save on your income
By carefully planning your taxes, you can save a significant amount on your tax liability and create an additional source of income for yourself. With the double benefit of tax savings and income generation, these deductions give you significant benefits. From time to time, the government introduces new deductions or amendments, which you should keep an eye on. One of these deductions available to you is U/s 80 CCD (1B), which applies to contributions paid to the NPS.
Download and prepare at a time 50 Employees Master of Form 16 Part B for the F.Y.2021-22
About NPS
NPS or National Pension System is a pension scheme available to both civil servants and individuals. NPS is one of the most popular options available for people looking to set up a retirement fund along with regular monthly income. Money deposited with NPS is invested in a variety of stocks and investment opportunities, including the stock market. It is widely regarded as one of the cheapest capital investment options. Since the revenues are directly related to the market trend, there is no guarantee of any specific amount, but over time the NPS revenues are among the highest in the market.
Two types of NPS accounts you should know about
NPS has two types of accounts: NPS level 1 and NPS level 2.
Level 1 account: This has a fixed blocking period until the subscriber reaches the age of 60. Only partial withdrawals are allowed under certain conditions. Contributions paid at Level 1 are non-taxable and are deductible in accordance with Section 80CCD (1) and Section 80CCD (1B). However, you can invest up to Rs. 2 lakh in the level 1 NPS account and request the full amount deducted eg. rupees. 1.50 lakh under section 80CCD (1) and Rs. 50,000 under section 80CCD (1B).
Download and prepare at a time 50 Employees Master of Form 16
Part A&B for the F.Y.2021-22
Level 2 Account: This is a mandatory voluntary savings account that allows subscribers to withdraw funds as they wish. But a contribution paid to a Tier 2 account is not eligible for a tax deduction. To open a Tier 2 account, Contributing to NPS is now subject to the Exempt-Exempt-Exempt (EEE) tax regime, under which the amount deposited in NPS, the income received and the reimbursement amount is tax-deductible. According to the latest guidelines, you can withdraw up to 60% of the amount at maturity, and the remaining 40% must be reinvested to purchase an annuity that gives you a regular monthly annuity.
What is Section 80CCD (1B)
Section 80CCD of the Income Tax Act deals with the deductions offered to individuals contributing to the NPS. Under section 80CCD, prior to 2015, an individual could claim a tax deduction of up to Rs. 1 lakh against contributions paid to NPS. In the 2015 budget, the government increased the maximum amount payable to the NPS to Rs. 1.50 lakh per year. Additionally, a new subsection 1B was introduced which offered an additional deduction of up to Rs. 50,000 / - for contributions paid by individual taxpayers to the NPS. Additional deduction in the amount of Rs. 50,000 / - under section 80CCD (1B) available for valuation in excess of the benefit of Rs. 1.50 lakh is available as a deduction under section 80CCD (1). Therefore, raising the maximum exemption limit to Rs. 2.00 lakh with Section 80CCD (1) + Section 80CCD (1B).
Download and prepare at a time 100 Employees Master of Form 16 Part B for the F.Y.2021-22
DID YOU KNOW?
Section 80C + Section 80CCC + Section 80CCD (1) For example, consider yourself an individual who invests Rs. 1 50 000 / - pursuant to Section 80C (PPF, Tax Saver FD, ELSS, etc.). You have now decided to deposit Rs. 70,000 / year in favor of NPS. Now you can apply for a deduction of 50,000 rubles. 2.00 lakh, i.e. rupees. 1.50 lakh under section 80C and Rs. 50.000 / - pursuant to section 80CCD (1B).
What to look for when applying for deductions under section 80CCD (1B)
Here are some important points related to Section 80CCD (1B) that you should be aware of. Additional deduction in the amount of Rs. 50,000 / - Available only for contributions paid to NPS Tier 1 accounts.
Download and prepare at a time 100 Employees Master of Form 16
Part A&B for the F.Y.2021-22
Level 2 accounts are not eligible for deduction under section 80CCD (1B).
Deductions under Section 80CCD (1B) are available to both employees and self-employed persons.
Documentary evidence of the operation related to the contribution to the NPS must be provided.
Partial withdrawals are allowed under the NPS but are subject to certain conditions.
The general exemption limit under section 80CCD (1B) is Rs. 50,000 / - and is not subject to exceptions under section 80 C. As such, you may be eligible for a maximum deduction of Rs. 2.00.000 / -
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