NPS Tax Benefits Explained: Section 80CCD(1), 80CCD(1B) & 80CCD(2)
Quick Answer
You can claim up to ₹1.5L under 80CCD(1) and an exclusive extra ₹50,000 under 80CCD(1B) for Tier-1 NPS contributions under the Old Regime. Corporate NPS contributions under 80CCD(2) offer deductions up to 10% of basic salary in BOTH Old and New Tax Regimes.
Three Tiers of NPS Tax Benefits
The National Pension System (NPS) offers unique tax advantages that can significantly lower your tax liability, especially for high-income earners.
- Section 80CCD(1): Your own contribution towards NPS Tier-1 is eligible for deduction up to 10% of your salary (basic + DA) or 20% of gross income (for self-employed), within the overall ₹1.5 lakh limit of Section 80C.
- Section 80CCD(1B): This is an additional deduction of up to ₹50,000 for contributions to Tier-1 NPS. This is over and above the ₹1.5 lakh limit of Section 80C.
- Section 80CCD(2): Employer's contribution towards your NPS account (up to 10% of Basic + DA) is deductible from your taxable income. For government employees, this limit is 14%.
NPS in the New Tax Regime
If you opt for the New Tax Regime, you lose the benefits of Section 80CCD(1) and 80CCD(1B). However, Section 80CCD(2) (Employer's Contribution) remains available as a deduction even in the New Regime. This makes NPS an excellent tool for salaried individuals to reduce tax even under the lower-rate default system.
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