Section 124 — Deduction in respect of employer and assessee contribution to pension scheme of Central Government. Successor to s.80CCD of the 1961 Act.
Section 124 is in Chapter VIII — Deductions to Be Made in Computing Total Income, which runs from section 122 to section 154.
Sub-section (1) allows an individual employee a deduction for the employer's contribution to a pension scheme notified by the Central Government, capped at 14% of his salary where the employer is the Central or a State Government and 10% where the employer is anyone else; sub-section (2) raises that 10% to 14% where the assessee's total income is chargeable under section 202(1). Sub-section (3) allows a separate deduction of up to Rs. 50,000 for the individual's own payment or deposit into his account under such a scheme, and sub-section (4) extends it to deposits made by a parent or guardian into a minor's account, with the combined ceiling under (3) and (4) staying at Rs. 50,000. Sub-sections (5) and (10) block overlap with section 123 in both directions. Sub-section (6) claws back the relief: amounts on which deduction was allowed under sub-sections (1), (3), (4) or paragraph 1(y) of Schedule XV, together with accretions, are deemed income of the year of receipt when received on closure of or opting out of the scheme, or as pension from an annuity plan bought on such closure — subject to sub-section (7) (nominee on the assessee's death), sub-section (8) (parent, guardian or nominee on closure due to a minor's death) and sub-section (9) (no receipt where the amount is used to buy an annuity plan in the same tax year). Sub-sections (11) and (12) do the same for a Unified Pension Scheme subscriber, charging amounts received on superannuation, voluntary retirement or retirement under Fundamental Rules 56(j) but treating a transfer from individual corpus to pool corpus as no receipt, and sub-section (13) defines "pool corpus", "individual corpus" and "salary".
The section gives relief for both sides of pension saving — the employer's contribution and the individual's own — while keeping the employer limb proportionate to salary and the personal limb at a flat cap. The deeming provisions exist so that money that went in untaxed does not come out untaxed: withdrawal or exit is charged unless it is recycled into an annuity or, in the Unified Pension Scheme, into the pool corpus, and genuine death cases are spared.
| What | Figure | The condition on it | Where |
|---|---|---|---|
| Employer contribution deductible | 14% of salary in the tax year | Where the contributing employer is the Central Government or a State Government | 124(1)(a) |
| Employer contribution deductible | 10% of salary in the tax year | Where the employer is anyone other than the Central or a State Government | 124(1)(b) |
| Substituted rate for the non-government employer limb | 14% | Applies only where the assessee's total income is chargeable to tax under section 202(1) | 124(2) |
| Deduction for the individual's own payment or deposit | Rs. 50,000 | Amount paid or deposited in the tax year into his own account under the notified pension scheme | 124(3) |
| Combined ceiling for own account and a minor's account | Rs. 50,000 | Aggregate of the deductions under sub-sections (3) and (4) — not Rs. 50,000 each | 124(4) |
The employer-contribution deduction is worked out on "salary", which under sub-section (13)(b) means basic pay plus dearness allowance only if the terms of employment so provide, and excludes every other allowance and perquisite — so the percentage applies to a narrower base than gross salary. The Rs. 50,000 personal deduction has to be shared with any deposit made into a minor's account, and cannot be claimed on an amount already claimed under section 123, nor claimed under section 123 once claimed here. If you close the account or opt out, the accumulated balance plus accretions becomes income of the year of receipt unless it is used in the same tax year to buy an annuity plan; a nominee receiving it on the assessee's death, and a parent, guardian or nominee receiving it on a minor's death, are not taxed. A Unified Pension Scheme subscriber retiring on superannuation, voluntary retirement or under Fundamental Rules 56(j) is charged on the amount received unless it is instead moved from individual corpus to pool corpus.
An individual employed by a private company has salary of Rs. 20 lakh (basic pay and dearness allowance, the terms of employment so providing) and the employer contributes Rs. 2.4 lakh to a notified pension scheme. Sub-section (1)(b) caps the deduction at 10% of salary, Rs. 2 lakh, so Rs. 40,000 of the contribution is lost — unless his total income is chargeable under section 202(1), when sub-section (2) reads '14%' for '10%' and the whole Rs. 2.4 lakh sits inside Rs. 2.8 lakh. He also deposits Rs. 40,000 in his own account and Rs. 30,000 in his minor daughter's; only Rs. 50,000 of that Rs. 70,000 is deductible, because sub-section (4) caps the aggregate of sub-sections (3) and (4), not each of them. If he later closes the account and receives Rs. 12 lakh with accretions, sub-section (6) makes the whole Rs. 12 lakh income of the year of receipt unless it is used to purchase an annuity plan in the same tax year.
In the employer's tax deduction at source computation on salary and in the return of income where the two deductions are claimed; and again in the year of exit, when a receipt on closure, opting out, or on superannuation or retirement under the Unified Pension Scheme has to be offered as income of that year. The persons the section names are the employer, the parent or guardian, and the nominee.
the whole of the amount referred to in clause (a) or (b) shall be deemed to be the income of the individual or his nominee, in the tax year in which such amount is received, and shall accordingly be charged to tax as income of that tax year
See the full 1961 to 2025 concordance.
See the notifications index.
