Tax Rebate to your Pension Contribution
The taxman will give following tax relief (under Sections 80C, 80CCC and 80CCD) to your pension contribution. The limit for maximum deduction (As per Section 80CCE) available under Sections 80C, 80CCC, and 80CCD (combined together) is Rs. 1,00,000/- (Rs. one lac only). Let’s check out all the above sections and how to claim tax rebate under them –
Following contributions can be claimed under Section 80C –
1- Sum paid under contract for deferred annuity For individual, on life of self, spouse or any child.
2- Sum deducted from salary payable to Govt. Servant for securing deferred annuity for self-spouse or child Payment limited to 20% of salary.
3- Contribution to notified deposit scheme/Pension fund set up by the National Housing Scheme.
4- Contribution to notified annuity Plan of LIC (e.g. Jeevan Dhara) or Units of UTI/notified Mutual Fund. If in respect of such contribution, deduction u/s 80CCC has been availed of (rebate u/s 88 would not be allowable).
Following contributions can be claimed under Section 80CCC –
1- Deduction in respect of Premium Paid for Annuity Plan of LIC or Other Life Insurers
2- Payment of premium for annuity plan of LIC or any other insurer Deduction is available upto a maximum of Rs. 100,000/-.
The premium must be deposited to keep in force a contract for an annuity plan of the LIC or any other insurer for receiving pension from the fund.
Note: An additional deduction upto a maximum of Rs. 20,000/- will be available from Assessment Year 2011-12 (FY 2010-11) for investment in Infrastructure Bonds.
Following contributions can be claimed under Section 80CCD –
1- Deduction in respect of Contribution to Pension Account (e.g. NPS)
2- Deposit made by a Central government servant in his pension account to the extent of 10% of his salary. Where the Central Government makes any contribution to the pension account, deduction of such contribution to the extent of 10% of salary shall be allowed. The employer’s contribution shall not be counted for computing the overall limit of Rs. 1,00,000/-. Further, in any year where any amount is received from the pension account such amount shall be charged to tax as income of that previous year.
Deposit made by Pvt. Company Staff can claim (up to 10% of an employee’s basic salary) more tax deductions by investing under the newly introduced Section 80CCD(2). However deduction in respect of contributions by the Central Government or any other employer to NPS available under Section 80CCD (2) will not be subject to the limit specified in Section 80CCE.
E.g. If a person with an annual basic salary of 5 lakh (nearly 40,000 a month) can get an additional deduction of 50,000 if his employer puts this money on his behalf in the NPS. Assuming that he will have other income (bonus, special allowance, interest , etc), which puts him in the 30% tax bracket, the NPS investment under Section 80CCD(2) will reduce his tax liability by almost 15,000.
Tax-free Lump Sum at Retirement
When you retire, you can normally choose to take less income and have up to 33.33% of your pension pot as tax-free cash and for the remaining 66.66%, you have to buy an Annuity Plan from LIC or Other Life Insurers.