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An employer contributes 20 per cent of basic salary to the NPS account of an employee whose basic salary is Rs 10,00,000 and dearness allowance (forming part of pay) is Rs 4,00,000. The amount disallowed is:
ARs 60,000
BRs 4,000
CRs 2,00,000
DRs 56,000
Answer & Solution
Correct answer: B. Rs 4,000
1. Section 36(1)(iva) limits the employer's deductible NPS contribution to 14% of salary, where salary includes dearness allowance if the terms of employment so provide.
2. Contribution made = 20% x Rs 10,00,000 (basic) = Rs 2,00,000.
3. Salary for the limit = 10,00,000 + 4,00,000 = Rs 14,00,000.
4. Deductible ceiling = 14% x 14,00,000 = Rs 1,96,000.
5. Disallowance under section 40A(9) = 2,00,000 - 1,96,000 = Rs 4,000.
6. Option A applies 14% to basic salary only (2,00,000 - 1,40,000 = 60,000) and misses that DA forming part of pay enters the limit; option C disallows the whole contribution; option D has no basis.
_Source: ICAI CA Inter P3(A) Income-tax SM (May 2026), Ch 3 Unit 3 PGBP, PDF p. 95_
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