All About Deductions U/s 80CCD of Income tax Act

All About Deductions  U/s 80CCD of Income tax Act 

Income Tax Act, 1961 provides various tax deductions under Chapter VI-A for contribution to pension plans. Such deductions are available u/s 80C, 80CCC and 80CCD. This guide talks about section 80CCD.

This section provides tax deductions for contribution to the pension schemes notified by Central Government, i.e., National Pension Scheme (NPS) & Atal Pension Yojana (APY). There are two parts or sub-sections of this section namely – section 80CCD(1) & section 80CCD(2).

Section 80CCD(1)

This part applies to all the individual tax payers who are employed by the Central Government/any other employer or any other individual assessee. All citizens of India between the ages of 18 and 60 years can contribute to NPS on a voluntary basis. An NRI can also contribute to NPS. This Scheme can be participated in addition to PPF and EPF.

Under this section, maximum deduction allowed is:

• up to 10% of salary for salaried employee
• and 10% of gross income for other taxpayer who is not under salaried employment

Part (1B) provides additional deduction of Rs. 50,000 for contribution made by an assessee under NPS.

Note: The maximum deduction as an aggregate of section 80C,80CCC & 80CCD(1) should not exceed Rs. 1,50,000 but after including section 80 CCD(1B), total deduction limit becomes Rs. 2,00,000.

Here salary means (basic pay + dearness allowance)

Section 80CCD(2):

Deduction is also allowed to an employee if his employer makes contribution to employee’s account in the pension scheme of Central Government. The deduction allowed here for employer’s contribution is up to 10% of the salary of the individual.

Taxability of amount received back from the National Pension Scheme & Atal Pension Yojana

40% of the payment received from the National Pension System Trust to an employee on closure of his account or on his opting out of the pension scheme referred to in section 80CCD shall be exempt u/s 10(12A).

Balance 60% will be taxable, but if the same is used for purchase an annuity plan, then it shall not be considered as income of individual at the time of closure of the account.

Further the periodic pension/annuity received from such annuity plan will be includible in the taxable income in the year of receipt and taxable accordingly. So in a sense by purchasing an annuity plan one can defer the tax liability or avoid/reduce the tax if he is not expected to have significant taxable income post retirement in future.

In case of death of account holder, the amount received by nominee of departed on closure of account is exempt from tax.

Consequences of False Claims

The provided information emphasizes the importance of accurately claiming exemptions and deductions in your Income Tax Return (ITR). Here’s a summarized and actionable breakdown:

Claiming Legal Deductions is Your Right

You are entitled to claim deductions and exemptions if you meet the conditions specified under the Income-tax Act and provide the necessary evidence.

Penalties for Misreporting Income

Claiming deductions or exemptions without fulfilling the conditions or overstating them constitutes misreporting.

Under Section 270A(8) of the Income-tax Act:
Penalty = 200% of the tax payable on the under-reported income.
Example: For a wrongful claim of ₹10,00,000:
Tax (30%) = ₹3,00,000 + surcharge & cess.
Penalty (200% of tax) = ₹6,00,000.
Total liability = ₹9,00,000 (excluding interest).

HRA and Other Misclaims: Incorrectly claiming House Rent Allowance (HRA) or any other deduction without eligibility is a common issue flagged by the Income-tax Department.

Consequences of Wrong Claims: Financial loss due to penalties and additional taxes. Stress from receiving notices and handling compliance.

Steps for Compliance and Peace: Claim exemptions or deductions only if you meet all requirements under the Income-tax Act. Keep proper documentation as evidence to support your claims. Pay due taxes if you are not eligible for specific exemptions/deductions.

Consequences of false claims:

Misreporting or Under-reporting of Income

• Wrongly claiming deductions or exemptions leads to misreporting or under-reporting of income.
• Penalty under Section 270A: If under-reporting arises from misreporting, the penalty is 200% of the tax payable on the under-reported income.

Financial Penalty Example:

Scenario: Wrong claim of ₹10,00,000 as deductions/exemptions.
Tax rate: 30%.
Tax on the misreported amount: ₹3,00,000.
Penalty (200%): ₹6,00,000.
Total liability: ₹9,00,000 (excluding surcharge, cess, and interest).

Interest on Unpaid Taxes (Section 234A, 234B, 234C) : Interest is levied on unpaid or delayed payment of taxes due to the false claim.

Other Legal Implications

• Audit and scrutiny: The Income-tax Department may subject the return to detailed scrutiny.
• Prosecution: If the misreporting is deemed deliberate and fraudulent, criminal charges may follow, leading to imprisonment under Section 276C of the Income-tax Act.
• Avoid misreporting income to prevent penalties and unnecessary stress. Ensure accurate and lawful tax filings to safeguard your financial well-being.

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