Contributions to contribute pension scheme and Eligible Deduction

Contributions to contribute pension scheme (CPS) are eligible for deduction as follows:

1. Employees Contribution:

Allowed as a deduction under Section 80CCD in the year of contribution up to 10% of your salary or Rs.1,00,000 whichever is lower.

The aggregate amount of deduction under Sections 80C, 80CCC and

80CCD(1)  can not exceed Rs.1,50,000. Employer’s contribution towards NPS is not considered for this ceiling of Rs.1,50,000.

(2). Employer’s Contribution..!

This is taxable but a deduction is allowed against this to the extent of 10% of your Salary. Salary for above purpose includes D.A and H.R.A but excludes all other allowances and perquisites.

Thus where the employer’s contribution is 10% of your salary there will be no tax implication at the time of contribution.

Later when the pension is received it will be taxed only at the time when it is received.

The Employer’s contribution is part of the Salary package and is income in the year of contribution. Still Government is giving a deduction up to 10% of Salary. Only the contribution in excess of this is being taxed.

This is not to be confused with the amount taxed at the time when pension is received. At that time only those amounts for which deduction has been claimed under Section 80CCD and accrued amounts will be taxable.

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