How to Claim NPS Tax Deduction: Steps for ITR Filing

Are you worried about claiming NPS tax deduction the right way? 

Don’t worry. You can considerably boost your tax savings if you correctly understand the NPS deduction section.

Here is a comprehensive walkthrough of the NPS tax deduction benefits. There are sections that discuss the different sections of the Income Tax Act under which you can claim these benefits. You can also proceed to the process or steps for claiming them when you file your Income Tax Return (ITR). 

What is NPS Tax Deduction: Let’s get to the basics

The National Pension System benefits are spread across different sections of the Income Tax Act. You can maximise your tax savings by knowing how the NPS deduction sections work. 

1. Deduction under Section 80CCD(1)

This section is for contributions made by an individual to their own NPS account. 

Both salaried and self-employed individuals can claim this benefit. 

The deduction is capped at the following:

• For Salaried Employees: 10% of their salary (Basic + Dearness Allowance).
• For Self-Employed Individuals: 20% of their gross total income.

This deduction falls under the overall umbrella of Section 80C, which has a total limit of ₹1.5 lakh per financial year. 

2. Exclusive Deduction under Section 80CCD(1B)

Section 80CCD(1B) has offered an exclusive additional NPS tax deduction of up to ₹50,000 for contributions made to your NPS Tier-1 account. 

• This benefit is over and above the ₹1.5 lakh limit of Section 80C
• You can claim a total deduction of up to ₹2 lakh (₹1.5 lakh under 80C/80CCD(1) + ₹50,000 under 80CCD(1B)). 

This is a special NPS deduction section.

3. Deduction for Employer's Contribution under Section 80CCD(2)

There is another layer of NPS tax benefit for salaried individuals.

If your employer contributes to your NPS account (as part of your CTC), you can claim a deduction for that amount under Section 80CCD(2). 

The deduction is limited to the following:

• For Central/State Government Employees: 14% of salary (Basic + DA).
• For Private Sector Employees: 10% of salary (Basic + DA) under the old tax regime.

This deduction has no upper monetary limit. It does not fall under the Section 80C or 80CCD(1B) limits. 

How to Claim NPS Tax Deduction: NPS Tax Deduction Claim Steps

Claiming your NPS tax deduction is simple. 

Let us look at the steps:

Step 1: Gather Your NPS Contribution Statement

You need proof of your NPS contributions for the financial year. 

• You can easily download the NPS Transaction Statement from the CRA (Central Recordkeeping Agency) website, such as Protean eGov Technologies. 
• You can check the details of all your NPS contributions made during the year. 
• You can keep this document handy.

Step 2: For Salaried Employees - Submit Proof to Your Employer

If you are a salaried individual, you can claim the NPS tax deduction easily. You can submit the investment proof to your employer at the beginning of the year or during the proof submission window (usually January-March). 

Here is what you can do:

• Provide your employer's HR or finance department with your NPS contribution statement.
• Clearly specify the amounts you wish to claim under Section 80CCD(1) and the additional ₹50,000 under Section 80CCD(1B).
• Your employer will factor in these deductions while calculating your TDS (Tax Deducted at Source) for the remaining months.
• The claimed amount will be reflected in your Form 16, making your ITR filing process much simpler.

Step 3: Claim the NPS Tax Deduction Directly in the ITR Form

If you missed submitting proof to your employer or if you are self-employed, you can claim the deduction directly when filing your ITR.

You can follow these steps:

• Log in to the Income Tax e-filing portal and choose the relevant ITR form.
• Navigate to the 'Deductions' section or the schedule related to Chapter VI-A deductions.
• You will find specific fields for the various sections.

For Section 80CCD(1): You can enter your contribution amount in the field for 80CCD(1). This will be clubbed with your other 80C deductions, and the total will be capped at ₹1.5 lakh.

For Section 80CCD(1B): There is a separate and dedicated field for this deduction. Look for the line item that explicitly mentions "Contribution to pension scheme of Central Government under section 80CCD(1B)". You can enter your additional contribution amount here, up to a maximum of ₹50,000.

For Section 80CCD(2): The employer's contribution is usually pre-filled in your ITR based on the details in your Form 16. You can find this in the 'Part B' of the salary schedule. You can verify this amount and ensure it is correctly claimed in the deductions schedule under the NPS deduction section 80CCD(2).

Step 4: Validate and Submit

Once you have entered all the deduction details correctly, the portal's tax calculator will automatically compute your reduced tax liability. 

You can cross-check all the figures one last time, validate the return, and submit it.

NPS Tax Deduction Sections at a Glance

Conclusion

The NPS tax deduction can offer better tax-saving opportunities available to Indian taxpayers. Its multi-layered structure, especially the exclusive ₹50,000 deduction under Section 80CCD(1B) can allow you to significantly lower your taxable income while simultaneously building a robust retirement corpus. 

You can simply follow the steps outlined above to claim NPS tax deduction during your ITR filing. 

Frequently Asked Questions

• Can I claim the NPS tax deduction under the new tax regime? 

No. The deductions under Section 80CCD(1) and Section 80CCD(1B) are not available if you opt for the new tax regime. However, the deduction for the employer's contribution under Section 80CCD(2) is still available under the new tax regime, which is a significant benefit for salaried individuals.

• What is the proof for claiming the NPS tax deduction? 

The NPS Transaction Statement for the relevant financial year serves as the primary proof of investment. This statement, which can be downloaded from your CRA's portal, details all your contributions. Your Tier I account statement is the valid document for claiming the tax benefit.

• Can I claim both HRA and the employer's NPS contribution deduction? 

Yes, absolutely. The deduction for the employer's contribution to your NPS account under Section 80CCD(2) is completely independent of the HRA exemption. You can claim both benefits simultaneously if you are eligible for them.

• I am self-employed. Which NPS deductions can I claim? 

Self-employed individuals can claim the NPS tax deduction under two sections. These are Section 80CCD(1) and Section 80CCD(1B). To know more about these NPS deduction sections, click here.