## Employer Contribution to Pension Scheme — Sec. 36(1)(iva)

When an employer contributes to the National Pension Scheme (NPS) under Section 80CCD on behalf of an employee, the employer can claim this contribution as a business deduction — but only up to a capped limit.

### Deduction Limit

The deduction allowed is the lower of:

1. Actual contribution made by the employer; OR

2. 14% of Salary, where Salary = Basic Salary + Dearness Allowance (DA), if DA forms part of retirement benefits

### Important Conditions

The deduction is subject to Section 43B — meaning it is allowed only if actually paid on or before the due date of filing the Return of Income (ROI).
The 14% limit applies uniformly (recent amendment harmonised central and other employees at 14%).

### Why this matters

This section incentivises employers to contribute to employees' retirement security, but caps the deduction so that excessive salary-substitution through pension routing is curbed.

⚠️ Common exam mistakes

Forgetting that Section 43B applies — even an authorised contribution is disallowed if not paid by ROI due date.
Using Gross Salary instead of Basic + DA (with DA forming part of retirement benefits) to compute the 14% limit.
Confusing employer's 14% deduction limit with employee's own 80CCD(1) / 80CCD(1B) deduction limits.

Bare-Act text Section 36(1)(iva) · Income-tax Act, 1961 · click to expand

Section 36(1)(iva): Any sum paid by the assessee as an employer by way of contribution towards a pension scheme, as referred to in section 80CCD, on account of an employee to the extent it does not exceed fourteen per cent of the salary of the employee in the previous year.

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Employer Contribution to Pension Scheme u/s 80CCD [Sec. 36(1)(iva)]

Worked example

⚠️ Common exam mistakes