Need Help Understanding Tax Exemptions for NPS Contributions Under Section 80CCD?

Clarification Needed on Section 80CCD (NPS) Under the IT Act

I need a little clarification on section 80CCD (NPS) under the IT Act. We know that any contribution made under section 80CCD(1) is the contribution made by the employee and thus comes under section 80C. Hence, the maximum tax exemption availed is Rs. 1 lakh. (I would like to be corrected in case I am wrong).

However, if any payment is made by the employer to NPS, then it comes under section 80CCD(2). My questions are:

a) How much is the maximum permissible amount that can be contributed under 80CCD (not considering the tax exemption limit)?

b) What is the tax exemption limit under 80CCD(2)?

With Regards,
Ashis

Minimum Contribution

Min Rs. 500.

Maximum Contribution

Max - 10% of Basic + DA. This will be tax-exempt if through the employer.

Regards,
Pon

Thank you, Mr. Pon, Does this mean the full contribution of 10% Basic + DA is exempted? For instance, if Basic + DA per month is, let's say, 3 lakhs, can I save up to 10% of 3 lakhs * 12 months = 3,60,000/- per annum in CCD?

The limit is 10% of basic + DA, with no upper ceiling on the amount. If your basic + DA is 3.6L per annum, the entire amount is exempted from income tax. This is the advantage of investing in NPS through your employer. For employees with a Cost to Company (CTC) structure, this option provides a good opportunity to save a substantial amount on tax.

Regards

Here is an article attached on NPS for further study of this scheme. The NPS by itself is a very good scheme, especially for those in the high-earning group, say Rs. 3 L+, because of its uniqueness of additional limit over and above the 80C deduction. I think many of our friends and their employers are not aware of the very existence of such a scheme. It's high time everyone should make use of this scheme to plan their future better. Pon is right in clarifying some issues to our friends.

Regards