Hi Vijay,
The contributions made by employer towards your NPS account qualifies for deduction under Section 80CCD (2) without attracting the limit of Rs 1 lakh laid down in Section 80 CCE from the current financial year.
However, there is only one restriction that only up to 10% of your salary only qualifies for deduction without any monetary limit. It works wonders for those in the highest tax bracket, as there is no absolute limit up to which your employer can contribute towards your NPS account for claiming the deduction as long as this is within the limit of 10% of your salary.
Thus, I would advise them to get their salary restructured so as to include 10% component of your salary as contribution to NPS. This will provide a separate window for tax saving and investment.
The point to note here is that the amount of 10% contributed by your employer will be treated as salary under Section 17 and will form part of Form No 16 issued to you. However, the employer will grant you deduction for his contribution under Section 80CCD (2) before deducting any income tax from your salary.
So for all practical purposes employer’s contribution to your NPS account up to 10% of your salary becomes tax free in your hand and gets invested in NPS. Even the provisions under proposed DTC are on the similar lines with regard to tax treatment of employer’s contribution.
Regards,
Venkat Polisetty.