Claim additional NPS (National Pension Scheme) tax benefit under Sec 80CCD (1B) , With All in One TDS on Salary for Govt and Non-Govt employees for F.Y.2016-17

Experts are divided over how taxpayers can claim the additional tax deduction for NPS contributions announced in last year's Budget. Some tax experts claim that employees covered by NPS can claim the deduction for their mandatory contributions under the new Sec 80CCD(1b). "An employee's mandatory contribution to NPS the is eligible for deduction under Section 80CCD (1b).

This means taxpayers covered by NPS will not have to make additional investments to claim the new deduction. Other tax-saving investments and expenses, such as home loan principal, children's tuition fees, life insurance premium, NSCs and ELSS funds, can be claimed under Section 80C while the mandatory contribution to NPS can be claimed under Section 80CCD (1b). 

If you have contributed Rs 50,000 or more towards NPS via salary deductions, maximise the tax benefits under both Section 80C and Section 80CCD(1b). Claim the full Rs 50,000 under the new section first and then adjust the residual to achieve total tax deduction of Rs 2 lakh.

Another interpretation says that the mandatory contribution can be claimed under the new section only if it exceeds the Rs 1.5 lakh limit under Section 80CCD(1). High-income earners covered by NPS stand to benefit from this interpretation. If the taxpayer contributes more than Rs 1.5 lakh to the NPS in a year, the amount in excess of Rs 1.5 lakh can be treated as the voluntary investment and claimed as a deduction under the new Section 80CCD(1b). 

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"Taxpayers have the flexibility to choose the sub-sections under which they want to claim the deduction. All they have to specify is that the deduction claimed is for their own contributions and there is no duplication in these claims.

However, others believe that the mandatory contribution to retirement savings made by an individual will not make him eligible for the new deduction. For that, the taxpayer must make an additional 'voluntary' or 'self' contribution to the NPS. 

Income tax laws allow the tax deduction for contributions to NPS under three sections. First, the employee's contribution under Section 80CCD(1). This deduction is under the overall Rs 1.5 lakh limit under Section 80C. Second, up to 10% of the basic salary put into the NPS by the company on behalf of the employee is deductible without any limit. The third is the new Section 80CCD(1B) under which a taxpayer can claim the deduction for the voluntary contribution of up to Rs 50,000. 

The new tax return forms have done little to dispel the confusion. While the deductions under different sub-sections of 80CCD have to be shown separately in the forms, there is no clarity regarding whether 'employee contributions' can be treated as 'self-contribution'. Tax experts say the department should clarify how this deduction can be availed of.