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NPS -Additional Deduction under Section 80CCD(1B)

Scenario 2
Created by Jayanti Venkata Ramana, last modified on Dec 23, 2019

Purpose:
The purpose of this Wiki is to understand the PY-IN topic which deals with the calculation of NPS Deduction under the
section Additional Deduction Under Section 80CCD(1B) under the following :-
Scenario 2
Employee has a contribution towards LIC (Infotype 0585), NPS contribution (employee and employer) is done
thru salary (Infotype 0587) along with the PF contribution.
Overview:
To know more about this behavior, we must first review the necessary information, and then know how to reproduce it so
that we can understand the reason of it.
1. Obtaining the necessary information:
For replicating the above scenario, let us take an example of an employee hired from 01.04.2016 with a monthly salary of
Rs.40, 000 having contribution towards LIC as Rs 30,000 (Infotype 0586). He further has NPS contributions done thru
payroll, i.e. thru Infotype 0587 in the same Financial Year.
2. Reproducing the behavior:
A) Employee in this case is hired from 01.04.2016, with a basic salary of Rs.40000/- per month.

B)Further he invests an amount of Rs.30,000 in LIC under infotype 0586, and NPS contribution thru Payroll under
Infotype 0587.
IT0586

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IT0587

In this case, the Employee contribution and Employer contribution towards NPS are done as a fixed amount as well as
NPS percentage. Hence both the fields are maintained.
C) Here we will check how the deductions under various sections i.e. 80C, 80CCE, 80CCD, 80CCD (1) &80CCD (1B) are
calculated when payroll for the employee is executed.
Important:-
1.For providing the deduction under 80CCD (1), 10% of annual NPS Basis acts as one of the factors.
2. You need to ensure that cumulation class ‘43’ & ‘44’ are checked / ticked for all relevant wage types which forms the
monthly basis for NPS
D) Execute the payroll of the employee for the month of April 2016, and check the following functions in payroll log:-
INS80
Output

Here /3FU is the Monthly Employee contribution to NPS which is calculated as follows:-
Rs.8000 as fixed amount + 15% of NPS basis (15%*Rs.40000) =Rs.14,000.00
/3FV is the Employee Annual NPS contribution amount = Rs.14,000*12 =Rs.168,000.00
INS88
Input

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Output

Here we have the /3FS Employer Monthly contribution to NPS wage type calculated as follows:-
Rs.8000 as fixed amount + 15% of NPS basis (15%*Rs.40000) =Rs.14,000.00
/3FT is the Employer Annual NPS contribution amount = Rs.14,000*12 =Rs.168,000.00
E) The wage types as calculated in INS88 in the Output can be explained as follows:-

If an Employee 'X' has monthly salary of Rs.40, 000 having contribution towards LIC as 30,000 INR. He further does NPS
contribution thru payroll for an amount of Rs.8000 as fixed deduction per month, and an additional 15% of his salary thru
Infotype 0587 in the same Financial Year. He shall be able to claim total deduction as per calculation shown below:
(a) 10% of Annual NPS basis = 10% * 4,80,000.00 = 48,000.00 INR
(b) Total NPS contribution = 168,000.00 INR (/3FV)
(c) Contribution towards 80c -LIC+pf = 30,000.00 + 57.600,00 (/3f6) = 87,600.00 (/3i2)
(d) Remaining deduction allowed under 80CCE = (150,000-87,600) = 62,400.00 INR
Deduction u/s 80CCD (1) (/3i7) = 48,000.00 INR [Minimum of (a), (b), (d)]
Deduction u/s 80CCD (1B) (/3i9) = 50,000.00 INR
/3i5 = Combined Employee 80CCD Exemption (/3i7 + /3i9) = 48,000+50,000=98,000.00
/3i6 = Employer Deduction u/s Sec80CCD = 48,000 INR
In this case the deduction under Employer NPS will always be equal to Employee NPS share. Therefore /3i6 will
be equal to /3i7.
Total Deduction (/3i1) here will be calculated as follows:-
87,600 [80C] + 48,000 [80CCD (1)] + 50,000 [80CCD (1B) +48,000[Sec80CCD Employer] =Rs.233,600.00
F) Execute the form 16 for the employee.
1.Check for the values appearing under point 9 -Deductions under Chapter VI-A

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Kindly note here that the Gross amount under (a) 80CCD (1B) (01) is shown as Rs.120, 000.00. This after considering the
above Rs.48000.00 which is taken as Gross amount under 80CCD (1).
The total of both is Rs.168, 000.00 which is the actual employee NPS contribution as per point (D) above!
2.Employer's Contribution to NPS will be added to gross salary Section 17(1) as can be seen in form 16.
Gross salary = Basic Salary (Rs.40,000*12) + Employer NPS contribution (Rs.14000*12) = Rs.480,000+Rs.168,000

Further points to be noted:-

-Employer's contribution u/s 80CCD shall be treated as an exemption while calculating the annual tax liability of the
employee.
-Employer's contribution u/s 80CCD will be over and above the limit of 150,000 INR under chapter VIA for the employee.
-Employer's contribution to NPS will be added to the monthly regular Income of the employee, i.e. /3FS Er NPS Cont will
be added to /124Mon Reg Inc wage type.
-Employer's contribution u/s 80CCD will be shown under point 9 A ,subsection (c) as Section 80CCD
Legality
-----------
Section 80CCD: Deduction in respect of Contribution to Pension Account
For FY 2014-15 (assessment year 2015-16)
Total Deduction under Section 80C, 80CCC and 80CCD(1) cannot exceed Rs 1,50,000.

For FY 2015-16 (assessment year 2016-17)

A new section 80CCD(1B) has been introduced to provide for additional deduction for amount contributed to NPS of up to
Rs 50,000.
Therefore for financial year 2015-16, Total Deduction under Section 80C, 80CCC, 80CCD(1) and 80 CCD(1B) cannot
exceed Rs 2,00,000.
From assessment year 2012-13, employer's contribution under section 80CCD(2) towards NPS is outside the monetary
ceiling mentioned above.

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