Salary :- Taxability of Contribution by employer in New Pension Scheme
It is known by every employee that New Pension Scheme(NPS) has been implemented w.e.f. 01.04.2006. In the other word, NPS is mandatory for all employees who have been appointments after 01.04.2006.
Now, question is that whether amount of contribution paid by employer is taxable in the hand of employee or not. To clarify the answer of this question, it is necessary to know meaning of salary. Meaning of salary has been explained below :-
Salary included :-
(ii) any annuity or pension;
(iii) any gratuity4;
(iv) any fees4, commissions, perquisites or profits4 in lieu of or in addition to any salary or wages;
(v) any advance of salary;
5[(va) any payment received by an employee in respect of any period of leave not availed of by him;]
(vi) the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule;
(vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and
6[(viii) the contribution made by the Central Government 7[or any other employer] in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD;]
On reading above meaning of salary, it is very much clear that the contribution made by employer under a pension scheme is part of salary which is taxable and deduction under section 80CCD will be allowed for the amount which has been contributed by the employer in new pension section. Therefore complete knowledge regarding section 80CCD is also required in the interest of employee.
28[Deduction in respect of contribution to pension scheme of Central Government.29
80CCD. (1) Where an assessee, being an individual employed by the Central Government 30[or any other employer] on or after the 1st day of January, 2004,31[or any other assessee, being an individual] has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited 32[as does not exceed,—
(a) in the case of an employee, ten per cent of his salary in the previous year; and
(b) in any other case, ten per cent of his gross total income in the previous year.]
(2) Where, in the case of an assessee referred to in sub-section (1), the Central Government 33[or any other employer] makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government 33[or any other employer] as does not exceed ten per cent of his salary in the previous year.
(3) Where any amount standing to the credit of the assessee in his account referred to in sub-section (1), in respect of which a deduction has been allowed under that sub-section or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—
(a) on account of closure or his opting out of the pension scheme referred to in sub-section (1); or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out,
the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.
34[(4) Where any amount paid or deposited by the assessee has been allowed as a deduction under sub-section (1),—
(a) no rebate with reference to such amount shall be allowed under section 88 for any assessment year ending before the 1st day of April, 2006;
(b) no deduction with reference to such amount shall be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.]
35[(5) For the purposes of this section, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.]
Explanation.—For the purposes of this section, "salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.]