Limit on deductions under sections 80C, 80CCC & 80CCD(1) [Section 80CCE] :
This section restricts the aggregate amount of deduction under section 80C, 80CCC and 80CCD(1) to Rs 1,50,000. It may be noted that the deduction of upto Rs 50,000 under section 80CCD(1B) and employer‘s contribution to pension scheme, allowable as deduction under section 80CCD(2) in the hands of the employee, would be outside the overall limit of Rs 1,50,000 stipulated under section 80CCE.
The following table summarizes the ceiling limit under these sections w.e.f. A.Y.2016-17 –
| Section | Particulars | Ceiling limit (Rs ) |
| 80C | Investment in specified instruments | 1,50,000 |
| 80CCC | Contribution to certain pension funds | 1,50,000 |
| 80CCD(1) | Contribution to NPS of Government | 10% of salary or 10% of GTI, as the case may be. |
| 80CCE | Aggregate deduction under sections 80C, 80CCC & 80CCD(1) | 1,50,000 |
| 80CCD(1B) | Contribution to NPS notified by the Central Government (outside the limit of Rs1,50,000 under section 80CCE) | 50,000 |
Illustration 4
The basic salary of Mr. A is Rs 1,00,000 p.m. He is entitled to dearness allowance, which is 40% of basic salary. 50% of dearness allowance forms part of pay for retirement benefits. Both Mr. A and his employer contribute 15% of basic salary to the pension scheme referred to in section 80CCD. Explain the tax treatment in respect of such contribution in the hands of Mr. A.
Solution
Tax treatment in the hands of Mr. A in respect of employer’s and own contribution to pension scheme referred to in section 80CCD
(a) Employer‘s contribution to such pension scheme would be treated as salary since it is specifically included in the definition of “salary” under section 17(1)(viii). Therefore, Rs 1,80,000, being 15% of basic salary of ` 12,00,000, will be included in Mr. A‘s salary.
(b) Mr. A‘s contribution to pension scheme is allowable as deduction under secti on 80CCD(1). However, the deduction is restricted to 10% of salary. Salary, for this purpose, means basic pay plus dearness allowance, if it forms part of pay.
Therefore, “salary” for the purpose of deduction under section 80CCD for Mr. A would be –
| Particulars | Rs |
| Basic salary = Rs 1,00,000 × 12 = | 12,00,000 |
| Dearness allowance = 40% of Rs 12,00,000 = Rs 4,80,000
50% of Dearness Allowance forms part of pay = 50% of Rs 4,80,000 |
2,40,000 |
| Salary for the purpose of deduction under section 80CCD | 14,40,000 |
| Deduction under section 80CCD(1) is restricted to 10% of Rs 14,40,000 (as against actual contribution of Rs 1,80,000, being 15% of basic salary of Rs 12,00,000) | 1,44,000 |
| As per section 80CCD(1B), a further deduction of up to Rs 50,000 is allowable. Therefore, deduction under section 80CCD(1B) is Rs 36,000 (Rs 1,80,000 – Rs 1,44,000). | 36,000 |
Rs 1,44,000 is allowable as deduction under section 80CCD(1). This would be taken into consideration and be subject to the overall limit of Rs 1,50,000 under section 80CCE. Rs 36,000 allowable as deduction under section 80CCD(1B) is outside the overall limit of Rs 1,50,000 under section 80CCE.
In the alternative, Rs 50,000 can be claimed as deduction under section 80CCD(1B). The balance Rs 1,30,000 (Rs 1,80,000 – Rs 50,000) can be claimed as deduction under section 80CCD(1).
(c) Employer‘s contribution to pension scheme would be allowable as deduction under section 80CCD(2), subject to a maximum of 10% of salary. Therefore, deduction under section 80CCD(2), would also be restricted to Rs 1,44,000, even though the entire employer‘s contribution of Rs 1,80,000 is included in salary under section 17(1)(viii). However, this deduction of employer‘s contribution of Rs 1,44,000 to pension scheme would be outside the overall limit of Rs 1,50,000 under section 80CCE i.e., this deduction would be over and above the other deductions which are subject to the limit of Rs 1,50,000.
Illustration
The gross total income of Mr. X for the A.Y.2016-17 is Rs 5,00,000. He has made the following investments/payments during the F.Y.2015-16 –
| Particulars | Rs |
| (1) Contribution to PPF | 1,10,000 |
| (2) Payment of tuition fees to Apeejay School, New Delhi, for education of his son studying in Class XI | 45,000 |
| (3) Repayment of housing loan taken from Standard Chartered Bank | 25,000 |
| (4) Contribution to approved pension fund of LIC | 1,05,000 |
Compute the eligible deduction under Chapter VI-A for the A.Y.2016-17.
Solution
Computation of Deduction under Chapter VI-A for the A.Y.2016-17
| Particulars | Rs |
| Deduction under section 80C | |
| (1) Contribution to PPF – fully allowed, since it is within the limit of Rs 1,50,000 | 1,10,000 |
| (2) Payment of tuition fees to Apeejay School, New Delhi, for education of his son studying in Class XI | 45,000 |
| (3) Repayment of housing loan | 25,000 |
| 1,80,000 | |
| Restricted to Rs 1,50,000, being the maximum permissible deduction under section 80C | 1,50,000 |
| Deduction under section 80CCC | |
| (4) Contribution to approved pension fund of LIC Rs 1,05,000 | 1,05,000 |
| 2,55,000 | |
| As per section 80CCE, the aggregate deduction under section 80C, 80CCC and 80CCD(1) has to be restricted to Rs 1,50,000 | |
| Deduction allowable under Chapter VIA for the A.Y.2016-17 | 1,50,000 |