NPS Tax Benefits: Section 80CCD(1B) & 80CCD(2)
The National Pension System (NPS) can give you up to three separate tax deductions — and they don't all work the same way. The headline one is the extra ₹50,000 under 80CCD(1B). But the most valuable for many salaried people is 80CCD(2) on your employer's contribution, because it's one of the very few deductions that still works under the New regime. Here's how the three NPS sections fit together.
The three NPS deductions at a glance
| Section | Whose contribution | Limit | Regime |
|---|---|---|---|
| 80CCD(1) | Yours | Within the ₹1.5 lakh 80C ceiling (up to 10% of salary) | Old only |
| 80CCD(1B) | Yours (extra) | An additional ₹50,000, over and above 80C | Old only |
| 80CCD(2) | Your employer's | Up to 14% of salary (New regime) / 10% (Old, non-government) — no fixed rupee cap | Old & New |
80CCD(1) — your contribution, inside the ₹1.5 lakh
Your own NPS contribution qualifies under 80CCD(1). Still, it shares the same ₹1,50,000 ceiling as 80C (for salaried people, capped at 10% of salary — basic + DA). So if you've already filled your ₹1.5 lakh with EPF, PPF, ELSS, and the rest, 80CCD(1) on its own adds nothing extra. That's where the next section comes in.
80CCD(1B) — the extra ₹50,000
This is the deduction most people mean when they say "NPS tax savings." Over and above the ₹1.5 lakh, you can claim up to ₹50,000 more for your own NPS contribution under 80CCD(1B). Stack it on a fully-used 80C, and your own-contribution deductions reach ₹2,00,000. It is available only under the Old regime.
80CCD(2) — employer NPS, and why it survives the New regime
When your employer contributes to your NPS, that amount is deductible under 80CCD(2) — up to 14% of salary (basic + DA) under the New regime, or 10% under the Old regime for non-government employees (government employees get 14% either way). There's no fixed rupee cap; it's a percentage of salary. Crucially, 80CCD(2) is one of the few deductions the New regime keeps. So if your employer offers an NPS contribution (often built into your CTC or a flexi-benefit structure), you can benefit even without switching to the Old regime.
How they stack up
- Old regime: 80CCD(1) (within ₹1.5 lakh) + 80CCD(1B) (₹50,000) + 80CCD(2) (employer) — up to ₹2 lakh of your own contribution, with the employer's amount on top.
- New regime: only 80CCD(2) (employer) applies — but it's a genuine deduction that the rest of the regime doesn't allow.
The extra ₹50,000, in numbers Illustrative
How the 80CCD(1B) deduction lowers tax for someone in the 30% slab — a hypothetical example.
Illustrative only — your actual benefit depends on your income, slab and regime, and 80CCD(1B) applies under the Old regime. Not tax advice; verify current rules on the official portal.
A quick word on withdrawal
NPS is a retirement product, so these deductions come with a long lock-in. At retirement, a portion of the corpus can be withdrawn tax-free, and the remainder funds an annuity, which is taxed as income when you receive it. Treat NPS as a long-term pension commitment rather than a one-year tax move — and check the current withdrawal and exemption rules before you rely on them.
See your NPS deductions under both regimes
MyTaxLocker's deductions assistant handles 80CCD(1), 80CCD(1B), and 80CCD(2) with live limit-checking — and compares your tax under the Old and New regimes so you can see whether the extra NPS deduction actually helps you.
Get it on Google Play