Section 80CCD

Deduction in respect of contribution to pension scheme of Central Government
[Section 80CCD]

(i) A “New Restructured Defined Contribution Pension System” applicable to new entrants to
Government service has been introduced. As per the scheme, it is mandatory for persons
entering the service of the Central Government on or after 1st January, 2004, to contribute ten
per cent. of salary every month towards their pension account. A matching contribution is
required to be made by the Government to the said account.

(ii) To give effect to the new pension scheme of the Central Government, a new section
80CCD has been inserted.

(iii) This section provides a deduction for the amount paid or deposited by an employee in his
pension account subject to a maximum of 10% of his salary.

(iv) The contribution made by the Central Government in the previous year to the said
account of an employee, is allowed as a deduction in computation of the total income of the
assessee. However, the deduction is restricted to 10% of the employee’s salary.

(v) The benefit of deduction under this section is currently available only to individuals
employed by the Central Government on or after 1.1.2004.

(vi) This deduction is now extended also to individuals employed by any other employer on or
after 1.1.2004.

(vii) The entire employer’s contribution would be included in the salary of the employee.

However, deduction under section 80CCD would be restricted to 10% of salary.

(viii) Further, the amount standing to the credit of the assessee in the pension account (for
which deduction has already been claimed by him under this section) and accretions to such
account, shall be taxed as income in the year in which such amounts are received by the
assessee or his nominee on -

(a) closure of the account or
(b) his opting out of the said scheme or
(c) receipt of pension from the annuity plan purchased or taken on such closure or opting
out.

(ix) No deduction will be allowed under section 80C from A.Y.2006-07 in respect of amounts
paid or deposited by the assessee, for which deduction has been allowed under section
80CCD(1).