NPS Deposits Deduction

NPS is the National Pension Scheme is the defined contribution pension scheme of The Central Government which has come into effect from January 01, 2004.

NPS is applicable to all new employees of Central Government service, except Armed Forces, who have joined Government service on or after 1st January 2004. Under the NPS, each person will open an account with Central Recordkeeping Agency (CRA), this account will be identified through unique Permanent Retirement Account Number (PRAN).

Non Government employees can also claim deduction by making deposits to this scheme, even if date of joining for them is prior to 1st January 2004.

The Income Tax Act allows deduction for NPS under section 80CCD and here are the conditions one needs to satisfy to avail this deduction –

  1. The taxpayer is an individual
  2. Is employed by the Central Government (on or after 1st Jan 2004) or employed by any other person, or he may be self employed.
  3. An amount has been deposited by the taxpayer, in his/her NPS account

The IT Act provides for deduction for both the Employer and Employees Contribution

Employee’s contribution – Section 80CCD(1) – Taxpayer can avail deduction in the year in which contribution is made. Any contributions in excess of 10% of salary (in case of taxpayer being an employee) or 10% of gross total income (in case of tax payer being self employed) are not deductible. Maximum amount of deduction allowed under section 80CCD(1) is Rs 1,00,000.

Employer’s contribution – Section 80CCD(2) – Contribution by the employer to NPS is deductible in the year in which contribution is made. No deduction is available in respect of employer’s contribution which is in excess of 10% of the salary of the employee.

Salary for the purpose of calculating deduction –includes DA, does not include other allowances or perquisites.

When payments are received from NPS – Any withdrawals or receipts from the NPS account (of amounts on which deduction has already been claimed or any accretions to this account) shall be taxed as income in the year in which these amounts are received. These may be withdrawn by the tax payer or his/her nominee upon closure of the account or opting out of the scheme or received as pension from this plan.

Here’s a summary for you –

NPS Deposits

Do reach out to us if you have any questions  and we will be happy to assist you!




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