When it comes to smart tax-saving strategies, understanding the benefits under Section 80CCD(1) and 80CCD(2) can work to make sure you make the right choices. Sections 80CCD(1) and 80CCD(2) fall under the Income Tax Act, 1961, to incentivise contributions towards the NPS. Though both sections offer tax benefits, their applications and limits differ.
For anyone seeking to understand and use tax-saving opportunities, the difference between Section 80CCD(1) and Section 80CCD(2) will result in better savings and optimised investments. This post will explain these two sections, outlining their unique benefits, eligibility, and how they may align with your financial goals.
Section 80CCD essentially encourages saving for retirement through investments in the NPS. The NPS is a voluntary retirement savings scheme, and its returns are related to the market. It is Government of India-backed and helps in long-term wealth creation. Investments under NPS qualify for tax benefits and are broadly divided into the following categories:
Both have unique benefits and tax exemptions. And if you understand the difference between them, you can use them to maximum advantage.
80CCD(1) allows deductions in NPS for both salaried people and self-employed taxpayers. Following are the highlights of the section:
| Feature | Details |
|---|---|
| Eligibility | Salaried individuals and self-employed taxpayers |
| Contribution Limit | Maximum deduction of up to ₹1.5 lakh per financial year |
| Limit as a % of Income | Salaried employees: up to 10% of their salary; Self-employed: up to 20% of gross income |
| Additional Benefit | An extra ₹50,000 deduction under Section 80CCD(1B) |
Using an income tax calculator will give an idea of the precise amount of tax savings through the contributions made under 80CCD(1) and other tax-saving routes.
Unlike Section 80CCD, Section 80CCD is an additional benefit available only to the salaried employee and extends employer contributions. If an employer contributes to an employee's NPS account, that amount becomes liable for tax deduction under Section 80CCD(2). Here are some highlights of Section 80CCD(2):
| Feature | Details |
|---|---|
| Eligibility | Only available to salaried employees |
| Contribution Limit | Deduction of up to 10% of the employee’s salary (basic + DA) |
| Exclusivity | Not available for self-employed individuals |
| Additional Deduction | This deduction is over and above the ₹1.5 lakh limit under Section 80CCE |
Here is a quick summary of how 80CCD(1) and 80CCD(2) differ:
| Parameter | Section 80CCD(1) | Section 80CCD(2) |
|---|---|---|
| Applicability | Salaried and self-employed taxpayers | Only salaried employees |
| Deduction Limit | Up to ₹1.5 lakh + additional ₹50,000 under 80CCD(1B) | Up to 10% of salary (basic + DA) |
| Included in Section 80CCE Limit? | Yes | No |
| Employer Contribution | Not applicable | Employer contributions only |
| Self-Employed Eligibility | Yes | No |
Taxpayers can use 80CCD(1) and 80CCD(2) to greatly reduce their taxable income. Following are some practical tips:
NPS offers a diversified retirement investment with the dual advantage of market-linked growth and tax savings. Here is why NPS can be a good choice:
Hence, NPS aligns well with the goals of retirement planning. If you're looking at options offering capital preservation and growth, you can check out PNB MetLife's Capital Guarantee Plus as part of a diversified portfolio. This savings plan can complement your NPS investment through guaranteed returns that go a long way in further securing your retirement.
Understanding the difference between 80CCD(1) and 80CCD(2) will help you better optimise your tax-saving strategy. While Section 80CCD(1) covers self-contribution, Section 80CCD(2) speaks about employer contributions not bracketed within the limit under 80CCE, hence gaining a special advantage in the case of salaried people. With the added benefits under 80CCD(1B), NPS is an excellent avenue for tax saving and retirement planning.
For those ready to plan their retirement with a balanced approach, PNB MetLife's Long-Term Savings Plans can help. The Capital Guarantee Plus and other saving plans offer balanced options for those prepared to plan their retirements. Build a solid financial foundation with guaranteed returns, tax-saving benefits, and flexible options tailored to your goals.
Tax benefits under Section 80CCD apply to NPS Tier 1 accounts. Tier 2 does not qualify for tax deductions.
The 80CCD(2) deduction is capped at 10% of the employee’s salary (basic + DA) for private-sector employees and 14% for government employees.
No, the new tax regime does not allow deductions under 80CCD(1B) or 80CCD(2). These are only available under the old tax regime.
Piyush Kataria, SEO Manager at PNB MetLife, is a seasoned digital marketing strategist with over a decade of experience in optimizing websites for search engines. His expertise extends to keyword research, content strategy, technical SEO, and link building, all of which have been instrumental in driving organic traffic growth at PNB MetLife. With a strong foundation in life insurance, Piyush leverages his industry knowledge to create targeted and effective SEO campaigns.
Sakshi Malhotra is a seasoned marketing professional associated with the Life Insurance industry since 2007. At PNB MetLife, she heads Digital Marketing and Direct to Customer line of business. She is responsible for driving effective customer engagement through the company’s website and social media channels. In addition, she drives customer online buying journeys to help them buy the right product.
Disclaimer:
The aforesaid article presents the view of an independent writer who is an expert on financial and insurance matters. PNB MetLife India Insurance Co. Ltd. doesn’t influence or support views of the writer of the article in any way. The article is informative in nature and PNB MetLife and/ or the writer of the article shall not be responsible for any direct/ indirect loss or liability or medical complications incurred by the reader for taking any decisions based on the contents and information given in article. Please consult your financial advisor/ insurance advisor/ health advisor before making any decision.
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Registered office address: Unit No. 701, 702 & 703, 7th Floor, West Wing, Raheja Towers, 26/27 M G Road, Bangalore -560001, Karnataka
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