New Pension Scheme (NPS) -Save Taxes and Secure Future

In the Direct Tax Regime (DTC), the new pension scheme (NPS) would be a big ticket tax saving and investment plan. At present, in view of provision of section 80CCE, the aggregate deduction under section 80C, 80CCC and 80CCD (80CCD governs the pension scheme) cannot exceed Rs. 100,000.  The allowable deduction under section 80CCD includes both the employee’s as well the employer’s contribution to the NPS.

The government has proposed to amend section 80CCE so as to provide that the contribution made by the Central government or any other employer to a pension scheme under section 80CCD (2) shall be excluded from the limit of Rs. 100,000 provide under section 80CCE. In order words, only the employee’s contribution to NPS shall be included for computation of the limit of Rs. 100,000 applicable to sections 80C, 80CCB and 80CCD.

Employer’s contribution (subject to limit of 10 per cent of employee’s salary) shall be deductible from gross total income in full and shall not be counted for computing the limit of Rs. 100,000 under section 80CCE. This will be free up to limit of Rs. 100,000 of the assessee for utilisation towards life insurance premium, housing loan principal repayments, tuition fees of children etc. and own contribution to NPS.

It is, also proposed to amend section 36 so as to provide that any sum paid by the assessee as an employer by way of contribution towards a pension scheme, as referred to in section 80CCD(2) on account of an employee to the extent it does  not exceed 10 per cent of the salary of the employee in the previous year, shall be allowed as deduction in computing the income under the head ‘profits and gain of business or profession’.

These amendments are proposed to take effect from 1st April, 2012 and will, accordingly, apply in relation to the assessment year 2012-12 and subsequent years.

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