The Government of India has mandated paying income tax based on the income in a financial year. Since the tax rate varies according to the income level of individuals/companies, the government has introduced several tax-saving approaches that help in lowering the tax liability.
Chapter VI under Section 80 of the Income Tax Act,1961 comprises of a list of deductions that help reduce the tax amount. Atal Pension Yojana is a pension system introduced by The Government Of India under Sec.80CCD.
The Atal Pension Yojana is a retirement oriented investment scheme that provides pension income upon maturity based on their contributions. Individuals between the ages of 18- 40 years can join the programme since the contributions are to be made for a minimum of 20 years. The investor can choose a fixed pension amount ranging from INR 1000 to INR 5000 upon maturity. Joint life schemes can also be availed under the program where-in the partner of the pensioner would receive the pay-outs in case of death. If the investor dies, the spouse can opt-out of the scheme and collect the accumulated amount with the programme until the specified time.
Section 80CCD has been further classified into two subsections viz. Sec.80CCD (1) and Sec. 80CCD (1B). These subsections provide clarity to investors about the available tax deductions.
- Section 80CCD (1)
- This subsection applies to both self-employed as well as salaried individuals to claim withdrawals on the contributions made towards the program.
- It applies to both Indian citizens and NRIs.
- If the tax-payer is between the ages of 18 years and 60 years, contributions made towards APY as well as NPS shall be permitted as a deduction under Section 80CCD (1).
- If the pensioner is a salaried employee, the maximum deduction allowed under this section is restricted to 10% of the salary, which means basic salary and allowance.
- For self-employed individuals, the maximum available withdrawal is 20% of the total gross income of the financial year earned by the pensioner.
- The highest limitation is INR 1.5 lakhs which would include the options of Section 80C too. Furthermore, an additional deduction of INR 50,000, over and above INR 1.5 lakhs can be claimed under Section 80CCD (1B).
- Thus, the total deduction available under the program would be INR 2 lakhs in a financial year.
- Section 80CCD (1B)
- This subsection provides an additional tax benefit of up to Rs 50,000 eligible income tax deduction to salaried employees.
- It applies only to salaried employees where the employer is contributing to the APY of the employee.
- The employer can make contributions to the APY in addition to those made towards EPF.
- The amount of contribution made by the employer can be equal to or higher than the offering made by the employee to the Atal Pension Yojana Scheme.
- The salaried employees can claim these deductions up to 10% of their salary or the number of contributions made by the employer.
- This deduction is accessible over and above Section 80CCD (1).
Since these investment avenues are the best way to lower the amount of taxes while creating savings, it is best to have complete knowledge about them for optimum savings!