Deduction Under New Tax Regime – NPS-U/s 80CCD(2)
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Allowable Deduction Under New Tax Regime – NPS-related deduction u/s 80CCD(2)
Under the new tax regime, the National Pension System (NPS)-related deduction under Section 80CCD(2) can indeed be claimed. Here are the key points to consider:
- This deduction is available only to salaried individuals. Self-employed individuals cannot claim this benefit.
- The deduction under Section 80CCD(2) pertains to the contribution made by the employer to the employee’s NPS account.
- Employer’s contribution to the NPS can be claimed as a deduction. The maximum amount that can be claimed as a deduction under this section is 10% of the employee’s salary (basic salary plus dearness allowance).
- This deduction is available over and above the individual’s own contributions to NPS under Section 80CCD(1), which is part of the overall limit of Section 80C (₹5 lakh).
- Under the new tax regime, while many deductions and exemptions are not allowed, the deduction under Section 80CCD(2) is explicitly permitted, making it a valuable benefit for salaried employees opting for the new regime.
if your employer makes a contribution to your NPS account, you can claim a deduction under Section 80CCD(2) even if you choose the new tax regime. This is an advantageous provision that helps in tax savings while promoting long-term retirement savings through NPS.
Exemptions under the New Tax Regime:
- Transport Allowance for Specially-Abled Persons: Transport allowance received by specially-abled persons.
- Conveyance Allowance: Allowance received to meet conveyance expenditure incurred as part of employment.
- Travel on Tour or Transfer: Compensation received to meet the cost of travel on tour or transfer.
- Daily Allowance: Allowance received to meet daily expenses incurred due to absence from the regular place of duty.
- Perquisites for Official Purposes: Perquisites provided by the employer for official purposes.
Deductions under the New Tax Regime:
- Employer’s Contribution to NPS (Section 80CCD(2)): Deduction for the employer’s contribution to the employee’s NPS account, up to 10% of the employee’s salary (basic + DA).
- Additional Employee Cost (Section 80JJA): Deduction for additional employee cost in specified cases.
- Standard Deduction: A standard deduction of ₹50,000 introduced in Budget 2023, applicable from FY 2023-24.
- Deduction on Family Pension Income (Section 57(iia)): Deduction introduced in Budget 2023 for family pension income.
- Agniveer Corpus Fund (Section 80CCH(2)): Deduction for the amount paid or deposited in the Agniveer Corpus Fund, introduced in Budget 2023.
Exemptions on Certain Types of Income:
- Voluntary Retirement (Section 10(10C)): Exemption on the amount received under voluntary retirement schemes.
- Gratuity (Section 10(10)): Exemption on the amount received as gratuity.
- Leave Encashment (Section 10(10AA)): Exemption on the amount received as leave encashment on retirement.
Other Exemptions:
- Interest on Home Loan for Let-Out Property (Section 24): Deduction on interest paid on home loans for let-out properties.
- Gifts: Exemption on gifts received up to ₹50,000 in a financial year.
Comparison of Exemptions and Deductions Available Under the Old vs New Regime:
| Exemptions/Deductions | Old Regime | New Regime |
|---|---|---|
| Standard Deduction | ₹50,000 | ₹50,000 (introduced in Budget 2023) |
| Section 80C (Investment in PPF, LIC, etc.) | Up to ₹1,50,000 | Not available |
| Section 80D (Medical Insurance) | Up to ₹25,000 (₹50,000 for senior citizens) | Not available |
| Section 80TTA/80TTB (Interest on Savings Account) | Up to ₹10,000 (₹50,000 for senior citizens) | Not available |
| House Rent Allowance (HRA) | Available | Not available |
| Leave Travel Allowance (LTA) | Available | Not available |
| Deduction for Interest on Home Loan (Section 24) | Up to ₹2,00,000 for self-occupied property | Only for let-out properties |
| Section 80CCD(1B) (Additional NPS Contribution) | Up to ₹50,000 | Not available |
| Section 80CCD(2) (Employer’s NPS Contribution) | Up to 10% of salary (basic + DA) | Up to 10% of salary (basic + DA) |
| Deduction for Additional Employee Cost (Section 80JJA) | Available | Available |
| Exemption on Voluntary Retirement (Section 10(10C)) | Available | Available |
| Exemption on Gratuity (Section 10(10)) | Available | Available |
| Exemption on Leave Encashment (Section 10(10AA)) | Available | Available |
| Deduction on Family Pension Income (Section 57(iia)) | Not available | Available (introduced in Budget 2023) |
| Deduction for Agniveer Corpus Fund (Section 80CCH(2)) | Not available | Available (introduced in Budget 2023) |
Under the new tax regime, taxpayers benefit from a simpler tax calculation process with reduced paperwork, but they lose out on many of the deductions and exemptions that are available under the old regime. It is important to evaluate both regimes and choose the one that offers the maximum tax benefit based on individual financial situations.
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