NPS Tax Benefits Explained: Section 80CCD(1), 80CCD(1B) & 80CCD(2)

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%.

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.