Income Tax :- Taxation on New Pension Scheme who have joined on or after 1st January, 2004

Saturday, December 28, 2013 | comments

PENSION SCHEME IN CASE OF AN EMPLOYEE JOINING CENTRAL GOVERNMENT OR ANY OTHER EMPLOYER ON OR AFTER JANUARY 1,2004

             New pension scheme (NPS) is applicable to new entrants to Government service or any other employer.   As per the scheme, it is mandatory or persons who come under this scheme, to contribute 10 per cent of salary every month towards their pension account.   A matching contribution is required to be made by the employer to the said account.   The tax treatment under the new scheme is as follows -
  • 1. Contribution by the employer to NPS is first included under the head "Salaries" in hands of the employee. 
  • 2. Such contribution is deductible (to the extent of 10 per cent of the salary of the employee) under section 80CCD.
  • 3. Employee's contribution to NPS (to the extent of 10 per cent of the salary of the employee) is also deductible under section 80CCD.
  • 4. When pension is received out of the aforesaid amount, it will be chargeable to tax in the hands of the receipient.  
  • 5. "Sakart" for the purpose of points 1 and 2 (supra) includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites. 
  • 6. The aggregate amount of deduction under sections 80C, 80CCC and 80CCD cannot exceed Rs. 1,00,000.00.   From the assessment year 2012-13, employer's contribution towards NPS is not considered for the purpose of monetary ceiling of Rs. 1,00,000.00.
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