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Tax queries: Can you claim deduction for NPS contribution made by your employer?

With effect from Assessment Year 2016-17, an additional deduction of Rs 50,000 for contribution towards NPS by employee is allowed u/s 80CCD(1B).

Updated: May 08, 2018, 01.28 PM IST
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Every week, an expert selected by ET answers queries from our readers on income tax and other levies.
Dilip Lakhani, Senior Chartered Accountant, answers queries from our readers on income tax and other levies.

My son is an employee of a PSU Bank. An amount equivalent to 10% of his salary (Basic + DA) is deducted from his salary every month as contribution to the National Pension Scheme. His employer also contributes the same amount to his NPS account. His total savings under section 80C of the IT Act is Rs 1.5 lakh, which does not include his own contributions to the NPS made from Salary.

But the total income as shown in Form 16 issued by his employer does not include the employer’s contribution to NPS. Can he claim the benefit under Section 80CCD(1B) for his own contribution to NPS through deduction from his salary and/or benefit under Section 80CCD(2) for the contribution made by his employer to his NPS a/c?

In respect of Contribution towards NPS by an employee, the deduction is allowed u/s 80CCD(1) in computing total income in the year of contribution to the extent of 10% of Salary. Salary will include basic salary and Dearness Allowance. Further, contributions made by employer to NPS is also allowed as deduction u/s 80CCD(2) in the hands of the employee in the year of contribution to the extent of 10% of Salary.

Besides, with effect from Assessment Year 2016-17, an additional deduction of Rs 50,000 for contribution towards NPS by employee is allowed u/s 80CCD(1B). By virtue of section 80CCE of the IT Act, aggregate of amount of deduction u/s 80C, 80CCC and 80CCD(1) cannot exceed Rs 150,000. However, this will not include contribution made by employer and the additional deduction of Rs 50,000 provided u/s 80CCD(1B) of IT Act. As your son is already claiming deduction u/s 80C to the extent of Rs 150,000, he may not be able to claim any further deduction u/s 80CCD(1). However, he will be eligible to claim the deduction u/s 80CCD(1B) to the extent of Rs 50,000 and deduction u/s 80CCD(2) for the contribution made by the employer.

My wife who regularly filed her income-tax returns passed away in April. She had fixed deposits jointly with me with operational instructions - “Former or Survivor”. She also had tax-saving mutual funds. I will be filing her tax return for the current year.

From the next financial year, all her FDRs would stand in my name and obviously interest income on such fixed deposits will be mine and I shall have to pay tax on them. Can I go for premature redemption of MFs, in which I am a nominee? Please advise what other formalities shall have to be completed to comply with tax rules.

Under the provisions of the Income Tax Act, 1961, every assessee having income chargeable to tax is required to file return of income. Your wife has filed the return of income for A.Y. 2017-18. Since she passed away in April 2018, you will have to file her tax return for AY 2018-19 (FY 2017-18) as the legal heir.

You will also have to file her tax return for the period April 1, 2018, till the date of death. From the facts, it emerges that you are the legal heir to the assets of your wife. You will inherit her assets after her demise. All the income which you will earn on the assets which will be inherited by you will be treated as your income.

The investments in the units of mutual fund will also vest in you and as per the terms and conditions of the issue of the units, you will be entitled to hold them or encash them before maturity. You will have to inform the banks and the mutual funds by producing death certificate for transfer of the fixed deposits and the units of mutual fund in your name.

Please send your queries on Stocks to et.stocks@timesgroup.com; Mutual Funds to et.mfs@timesgroup.com Tax to et.tax@timesgroup.com Insurance to et.insurance@timesgroup.com Realty to et.realty@timesgroup.com

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