Once you know about "what is 80CCD", let's dive in to know about its 2 divisions:
What Is Section 80CCD (1) of Income Tax Act?
This subsection of the 80CCD Income Tax Act focuses on the tax deductions against the investment in NPS.
Now, note the following provisions of 80CCD (1):
- Maximum Deduction: Up to 10% of your total income(basic + dearness allowance)
- For Self-employed: The maximum deduction limit extended to 20% of his/her total income. The maximum deduction ceiling is ₹1,50,000 in the concerned financial year.
Note: Similar deduction limit applies to Atal Pension Yojana Scheme.
According to the Government Budget 2015, 80CCD 1(B) has been added to the list. Here, whether you are self-employed or salaried, you can enjoy an additional tax deduction of ₹50,000. However, this increased the 80CCD deduction limit to ₹2,00,000.
What Is Section 80CCD(2) Under Income Tax Act?
This section primarily deals with the contributions made by an employer towards the NPS scheme besides the PPF and EPF. There is a maximum limit to the employer's contribution. It can be higher or lower than the employee's contribution. Here, only salaried individuals are eligible to enjoy tax deductions. You can avail of this deduction under this section over and above the Section 80CCD (1). As an employee, here's the maximum deduction you can claim:
Maximum Deduction:
- Up to 10% of the employee's total income (basic + dearness allowance) is equivalent to the employer's contributions.
- In the Central Government's employee, you enjoy a tax deduction of 14% on the total income.