Income Tax Dept allows deduction for Pension Contribution made by Employer

Tagged with: deduction of employer contribution for pension fund, deduction under section 80ccd

Friday, February 12, 2010

This article is posted in Income Tax category and has 16 Comments so far.

Income tax department had earlier issued the Circular No: 1/2010 dated 11.1.2010 meant for deduction of tax at source for salaried class. However, it had lead to various doubts, especially the treatment under Section 80 CCD relating to Contribution made by employer for pension fund such as New Pension Scheme (NPS).

Now, Income tax department has come up with a clarificatory circular that settles the said doubt.

In the Circular No: F.No. 275/192/2009-IT (B) New Delhi Dated the 9th February, 2010, tax men have clarfied that, where the Central Government or any other employer makes any contribution to the account of employee for the pension scheme, the employee shall also be allowed a deduction in the computation of his total income of the whole of the amount contributed by the Central Govt. or any other employer as does not exceed 10% of his salary in the previous year.

It was also clarified that this deduction is in addition to deduction in respect of contribution made by an individual in the previous year to his account under a pension scheme notified, to the maximum of 10% of his salary.

Go to Income Tax section of GConnect Circular Corner for preview of download of the said IT circular.

Recent Posts

You can follow any responses to this entry through the RSS 2.0 feed.

You can leave a response, or trackback from your own site.

16 Responses to “Income Tax Dept allows deduction for Pension Contribution made by Employer”

pratibha said on Wednesday, February 17, 2010, 20:22

in the Circular No: F.No. 275/192/2009-IT (B) Dated the 9th February, 2010, tax men have clarfied that, where the Central Government or any other employer makes any contribution to the account of employee for the pension scheme, the employee shall also be allowed a deduction in the computation of his total income of the whole of the amount contributed by the Central Govt.
the circular further states that total deductions under 80c and 80ccd has a cap of Rs.1,00,00/- In such case whether the deduction is subject to total of Rs.100000/-?

Reply
admin Reply:
February 18th, 2010 at 7:14 am
Yes. All the savings instruments such as NSC, GPF, LIC, ELSS, Pension Fund etc., put together would fetch a maximum tax exemption of Rs.1 lakh only. (Section 80C, 80CC, 80CCD)

Reply
D.G.Mandal said on Monday, February 22, 2010, 12:29

My saving as Insurance Rs.121000. My employer contribution to New Pension Scheme Rs.47000/- . So no benefit u/s 80C as it restricted to Rs1.00,000/- which cover by my insurance premium.

At the time of retirement pension will be taxable. so new pension scheme is under double taxation .

Reply
Prashant Mohan Sharma said on Wednesday, March 3, 2010, 16:10

please clarify as to whether the amount contributed by Central Government will be first included in gross salary & then claimed for benefit under section 80CCD of IT Act. e.g

my contribution == Rs 30000 under NPS &
Govt Contributed Rs 30,000

then whether Rs. 60000 will be included in Gross Salary for taxable income or the govt. contribution of Rs. 30000 will be excluded entirely. Moreover whether Rs. 60000 will be taken under cap of 100000 or my contribution of Rs. 30000 only will be included for tax benifit.

Reply
jayalan Reply:
March 5th, 2010 at 4:06 pm
Central Government contribution to the account of employee for the pension scheme, can be deducted from the total income. Ceiling for this purpose is 10% of yearly basic + DA. It should be shown under 80 ccd and overall limit of Rs. 1 lakh would apply.

Check

http://gconnect.in/service-circulars

for more details

Reply
a k Reply:
March 28th, 2010 at 9:26 pm
Is this basic pay means BP+ Grade pay or only BP?

Reply
admin Reply:
March 30th, 2010 at 7:55 am
dear ak
After 6 cpc basic pay means Band pay plus Grade pay for all purpose
R. K. Singh said on Monday, March 8, 2010, 17:01

10% government contribution in the NPS will come under 80CCD or it will get deduction from the total income without considering it as my saving

Reply
admin Reply:
March 9th, 2010 at 7:29 am
it would come under Section 80CCD

Reply
j S panwar said on Tuesday, March 9, 2010, 1:18

sir,
I am a central Govt. employee. Under NPS, how can contributions made by Govt/Employer be part of Rs 100,000 u/s 80 as it would be reducing the Rs 100000 limit by the contribution made by Govt /Employer. In the case of employee who has joined Cent. Govt before NPS issue . For him 100000 limit is in tact and at the same time Govt will also be giving Pension to him. Is It justified to include Govt contribution in Individual limit of 1lakh ?

Reply
admin Reply:
March 9th, 2010 at 7:27 am
Your analogy may be sensible. But as per the recent clarification of Income tax department it’s very clear

Reply
Kamlesh Kumar said on Tuesday, March 9, 2010, 8:38

Yes, Government is not doing justice with newly recruited employees in government on & after 1.1.2004 by imposing double taxation norms. Similar pension schemes are already in process in several autonomous government organizations and PSU/Private sector in which 12% employer contribution is not included at all for estimation of gross salary, hence , neither 12% employer contribution is added in salary nor deducted from total salary for this purpose it means 1,00000 limit is free for self contribution, LIC, Tution fee, NSC,PPF, ELSS etc. In my case this years total government contribution under NPS is 49000/- and self contribution is 49000/- so total is 98000/-, Tution fee for two children is 23000/- LIC is 22500/- there fore total saving is estimated around 143500/- however ,I can claim upto 1,00000 only so on 43500, I have to pay Income Tax @20% because due to government contribution I am coming under 20% income tax bracket , it means instead of benefit I am in loss. At the time of withdrawal from the scheme I have to again pay IT at higher rate @ 30% on total withdrawal it includes accumulated government contribution , self, appreciation on it , it could be 15,00000/- it means in entire service government will contribute 5,00000/ self 5,00000 and appreciation 5,00000 on which government will be taking back ITax @30% of total = 450000/- at the time of maturity and on government contribution of 5,00000/ government will be taking back through yearly IT say 20% of 5,00000 = 1,00000/-. It means government will take back 5,50,000/ in entire career but contribute only 5,00000/- in the name of new pension system, It means government will be consuming our hard earned 50,000.Therefore due to new pension scheme government is not benefiting by single paisa.In the case of old pension scheme government is giving full scope of 100000 saving includes GPF, LIC, Housing, Tution fee in addition of definite benefit pension at the time of retirements.
Please clarify, how NPS is comparable with any other existing pension system.

Reply
AJAY said on Wednesday, March 10, 2010, 19:33

actually this is a very cruel move by the government against the new pension scheme subscribers. the total amount of tax gained by the government by this way is negligible.
but it makes a big difference to the NPS employee.
1 lakh limit is nothing, so practically all the government contribution is taxable.
when the government is permanently withdrawing from its social obligations including providing a decent postretirement life to it employees; it is actually very very slimy and cheap to eat away even the miniscule benefits that they are now providing to NPS employees.
The NPS employees are severely discriminated against and there is no one to bother in the government.
wish hell for this capitalist government and their multinational masters.

Reply
a k said on Friday, March 26, 2010, 21:59

Please clarify as to whether the amount contributed by Central Government will be included in gross salary. My contribution= Rs 51000 under NPS &
Govt Contributed Rs 51,000. Whether total 1,02,000 will be included under salary? If yes then there is no need for saving. If not then I have to save 49000 to in other mode to make it 100000 before 31st march. What should I do? Any circular/notification is available regarding this?

Reply
admin Reply:
March 27th, 2010 at 8:10 am
Please go through this GConnect article for deduction of amount contributed by employer for NPS

http://gconnect.in/gc/service/personal-income-tax/income-tax-dept-allows-deduction-for-pension-contribution-made-by-employer.html

Reply
a k Reply:
March 28th, 2010 at 9:16 pm
the circular is not clearly answering my question? I will be thankful if u can answer…

Reply