Taxation of New Pension Scheme

New pension scheme was intiated by PFDRA(Pension Fund Regulatory and development authority). NPS has been extended to all the citizens of India from 1-5-2009

New pension scheme is applicable to new entrants to government service or any other employer. As per the scheme, it is mandatory for persons entering service on or after January 1, 2004, to contribute 10 percent of salary every month towards notified pension account. A matching contribution is required to be made by the employer to said account. The tex treatment under the new scheme is as follow --

1. Contribution by the employer to the notified pension scheme is first included under the head "salaries" in the hands of the employee u/s 17(1)(viii).

2. Employer's contribution is deductible (to the extent of 10 percent of the salary of the employee) under section 80CCD.

3. Employee's contribution to the notified pension scheme  (to the extent of 10 percent of the salary of the employee) is also deductible under section 80CCD.

4. When pension is received out of aforesaid amount it will be chargeable to tax in the hands of recipient (80CCD)

5. No deduction allowed under section 80C in respect of amounts on which deduction has been claimed under section 80CCD.

6. The aggregate amount of deduction under section 80C, 80CCC and 80CCD cannot exceed Rs. 1,00,000.Whether limit of 100000 applies to employer as well as employee contribution

7. Under section 36(1)(iva) deduction is allowed to employer for contribution made to pension scheme , to the the extent it does not exceed 10% of salary of employee in the previous year

8.. "Salary" for the purpose of Points 1 and 2,7 includes dearness allowance, if the terms of employment so provide, but excludes all other allowance and perquisites.