I am a central government employee. My National Pension Scheme (NPS) contribution is about ₹80,000 per year. My employer also contributes a matching amount. I have already invested ₹1.5 lakh in Equity Linked Savings Scheme (ELSS) and Public Provident Fund (PPF). My account department says I can claim the extra ₹50,000 (over and above ₹1.5 lakh) only if I make a voluntary contribution. Please clarify.
- Atul Sachan
You can claim a total tax deduction of only ₹2 lakh under Section 80C and Section 80CCD. Your total investment of ₹2.3 lakh is above the maximum permissible deduction. You can claim a deduction of ₹1.5 lakh under Section 80C on your investments in ELSS and PPF. However, you won't qualify for a deduction of the entire amount (₹80,000) you have invested in NPS as that would breach the maximum limit of ₹2 lakh. You can only claim an additional deduction of ₹50,000. You can claim this under Section 80CCD(1B). It is not necessary that you have to make voluntary contributions to claim this deduction.
Do not exceed the maximum permissible limit next year. For example, if you are going to invest ₹80,000 in NPS, you should ideally invest only ₹1.2 lakh to claim a deduction under Section 80C. This will help you to claim the maximum deduction possible under both sections. You can claim ₹50,000 under Section 80CCD(1B) on your contributions to NPS and the rest of the deduction can be claimed under Section 80C.
This article was originally published on January 15, 2016.
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