NPS Tax Benefits Under Sections 80CCD(1), 80CCD(1B) and 80CCD(2)

Tax Deductions Available Under NPS

Section 80CCD(1) — Employee's Own Contribution

Under this section, an individual subscriber can claim a tax deduction on contributions made to their NPS Tier I account. The deduction is allowed up to 10% of salary (Basic + DA) for salaried employees, or 20% of gross total income for self-employed individuals.

This deduction falls within the overall ₹1.5 lakh limit of Section 80CCE, which includes deductions available under Sections 80C, 80CCC, and 80CCD(1) combined.

Section 80CCD(1B) — Additional Exclusive Deduction

This is where NPS truly stands apart. Over and above the ₹1.5 lakh limit of Section 80CCE, NPS subscribers can claim an additional deduction of up to ₹50,000 under Section 80CCD(1B) for contributions to Tier I. This exclusive tax benefit is available only to NPS subscribers and is not applicable to any other savings instrument.

In effect, a subscriber in the highest tax bracket can save up to ₹15,600 in taxes annually through this provision alone.

Section 80CCD(2) — Employer's Contribution

For salaried employees enrolled under Corporate NPS, the employer's contribution to the employee's NPS Tier I account is also tax-deductible. The deduction is allowed up to 10% of salary (Basic + DA) for private sector employees, and up to 14% for central government employees. Importantly, this deduction is over and above the limits under Section 80CCE and 80CCD(1B), offering even greater tax savings.

NPS Tax Benefits at a Glance

Section	Eligible Subscriber	Maximum Deduction
80CCD(1)	Self / Salaried	Up to 10%/20% of income (within ₹1.5L cap)
80CCD(1B)	All NPS Subscribers	Additional ₹50,000
80CCD(2)	Salaried (Corporate NPS)	Up to 10–14% of salary (no cap)

Tax Treatment at Maturity

NPS follows an Exempt-Exempt-Exempt (EEE) structure in part:

Contributions: Tax deductible
Growth during accumulation phase: Tax-free
Lump sum withdrawal of up to 80% at maturity: Tax-free
At least 20% of the corpus is required to be invested in an annuity plan.

NPS Tax Benefits FAQs

Under Section 80CCD(1), individual employees can claim tax deductions up to 10% of their salary (Basic + DA) or 20% of gross total income for self-employed individuals, within the overall ₹1.5 Lakh limit of Section 80C.

Section 80CCD(1B) allows an additional exclusive tax deduction of up to ₹50,000 for Tier I contributions, over and above the ₹1.5 Lakh limit under Section 80C.

Employer contributions to an employee's Tier I account up to 14% of Basic + DA under the New Tax Regime (or up to 10% for private employees under the Old Tax Regime) qualify for tax deduction under Section 80CCD(2) without impacting Section 80C or 80CCD(1B) caps.

An individual can claim up to ₹2 Lakhs in self-contributions (₹1.5 Lakh under 80C/80CCD(1) + ₹50,000 under 80CCD(1B)), plus additional deductions on employer contributions under Section 80CCD(2).

Employer contributions under Section 80CCD(2) remain deductible under the New Tax Regime (up to 14%), while deductions under Section 80CCD(1) and 80CCD(1B) apply specifically to the Old Tax Regime.

Up to 60% of the accumulated corpus withdrawn as a lump sum upon reaching superannuation is completely tax-free under Section 10(12A).

The amount utilized (minimum 40%) to purchase an annuity plan is exempt from GST and income tax at the time of purchase. Regular monthly pension payouts received from the annuity are taxable according to the subscriber's applicable income tax slab.

Partial withdrawals up to 25% of self-contributions made under eligible conditions are 100% tax-exempt under Section 10(12B) of the Income Tax Act.

No, general individual subscribers cannot claim tax deductions on investments made into Tier II accounts.

Corporate employers can claim deductions up to 14% of Basic + DA as a deductible business expense under Section 36(1)(iv)(a) of the Income Tax Act.

Save More, Invest Smarter — Tax Benefits of NPS

Tax Deductions Available Under NPS

Section 80CCD(1) — Employee's Own Contribution

Section 80CCD(1B) — Additional Exclusive Deduction

Section 80CCD(2) — Employer's Contribution

NPS Tax Benefits at a Glance

Tax Treatment at Maturity

NPS Tax Benefits FAQs

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Save More, Invest Smarter — Tax Benefits of NPS

Tax Deductions Available Under NPS

Section 80CCD(1) — Employee's Own Contribution

Section 80CCD(1B) — Additional Exclusive Deduction

Section 80CCD(2) — Employer's Contribution

NPS Tax Benefits at a Glance

Tax Treatment at Maturity

NPS Tax Benefits FAQs

Q1: What tax deduction is available under Section 80CCD(1)?

Q2: What is the exclusive tax benefit provided under Section 80CCD(1B)?

Q3: How does Section 80CCD(2) benefit salaried individuals under Corporate NPS?

Q4: What is the maximum total tax deduction an individual can claim in a financial year via NPS?

Q5: Are NPS tax deductions available under the New Tax Regime?

Q6: How is the 60% lump-sum withdrawal taxed upon maturity at age 60?

Q7: Is the portion used to purchase an annuity taxed at maturity?

Q8: Are partial withdrawals from Tier I taxable?

Q9: Do investments in Tier II accounts enjoy tax deductions?

Q10: What tax deduction can corporate employers claim for contributing to employee NPS?

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Message from MD

— Ankit Agarwal, Managing Director, Alankit