Deductions Under Section 80CCD of the Income Tax Act

Section 80CCD provides tax deductions for contributions made towards the National Pension System (NPS) and the Atal Pension Yojana (APY). By investing in these schemes, taxpayers can claim NPS-related tax benefits under this section and effectively reduce their taxable income.

NPS Deduction Limits

Section	Type of Contribution	Deduction Limit	Available in Old Regime	Available in New Regime
80CCD(1)	Contribution made by the taxpayer	Up to ₹1.5 lakh (combined with Sections 80C and 80CCC)	✅ Yes	❌ No
80CCD(1B)	Additional contribution by the taxpayer	Up to ₹50,000	✅ Yes	❌ No
80CCD(2)	Contribution made by the employer	10% or 14% of salary (Basic + DA)	✅ Yes	✅ Yes

What is Section 80CCD?

Section 80CCD of the Income Tax Act provides tax deductions for contributions made to the National Pension System (NPS), the Unified Pension Scheme (UPS), and the Atal Pension Yojana (APY).
For salaried individuals, both the employee’s own contribution and the employer’s contribution are eligible for deduction under this section.
According to the latest government notification, all tax benefits earlier applicable to the NPS are now extended to the Unified Pension Scheme (UPS) as well.

Eligibility for Section 80CCD

Only individual taxpayers who are Indian citizens can claim deductions under this section.
Non-resident individuals (NRIs) are also eligible to claim deductions under Section 80CCD.
Both salaried and self-employed individuals contributing to NPS can avail of this deduction.
The eligible age range for NPS subscribers is between 18 to 70 years. Therefore, deductions under this section apply only to taxpayers within this age bracket.
For the Atal Pension Yojana (APY), the permissible age limit is 18 to 40 years.
Contributions made towards the Unified Pension Scheme (UPS) and NPS Vatsalya are also eligible for deduction under Section 80CCD.

Detailed Analysis – Section 80CCD(1), 80CCD(1B), and 80CCD(2)

Deductions available under the National Pension System (NPS) are categorized into two main types, which are covered under different sub-sections of Section 80CCD. These are:

Section 80CCD(1): Taxpayer’s own contribution to NPS
Section 80CCD(1B): Additional deduction for the taxpayer’s own contribution
Section 80CCD(2): Employer’s contribution to NPS

Each of these provisions is explained in detail below.

Section 80CCD(1): Deduction on the Taxpayer’s Own Contribution to NPS

The deduction limit for the taxpayer’s own contribution under Section 80CCD(1) is ₹1.5 lakh.
The combined deduction limit under Sections 80C, 80CCC, and 80CCD(1) is restricted to ₹1.5 lakh in total.
Only contributions made to the Tier-I NPS account are eligible for deduction.
This deduction is available only to taxpayers opting for the old tax regime.

The specific deduction limits under Section 80CCD(1) based on the type of employment are as follows:

Status of Employment	Maximum Deduction	Maximum Amount Allowed
Salaried Employee	10% of salary (Basic + DA)	₹1.5 lakh
Self-Employed Individual	20% of gross total income	₹1.5 lakh

This section primarily benefits individuals who contribute to NPS from their own income and wish to claim a deduction within the overall limit of ₹1.5 lakh.

Section 80CCD(1B): Additional NPS Tax Deduction of ₹50,000

Under Section 80CCD(1B), taxpayers can claim an additional deduction of up to ₹50,000 for contributions made to the National Pension System (NPS). This benefit is available over and above the ₹1.5 lakh limit allowed under Section 80CCD(1).

With this additional deduction, an individual can claim a total tax deduction of up to ₹2 lakh for their own NPS contribution.
It is important to note that the ₹50,000 additional deduction under Section 80CCD(1B) is available only in the old tax regime and not in the new tax regime.

Section 80CCD(2): Deduction on Employer’s NPS Contribution

Section 80CCD(2) deals with the deduction available for the employer’s contribution to an employee’s NPS account. The deduction limit under this section varies depending on the type of employer and the tax regime opted for.

The employer’s contribution of up to 14% of salary (Basic + DA) can be claimed as a deduction under both the old and new regimes.
For other employers (non-government), the contribution is limited to 10% under the old regime and 14% under the new regime.
Both Central and State Government employees can claim up to 14% of salary as a deduction in either regime.
This benefit is available only for salaried employees, as self-employed individuals do not receive employer contributions and hence cannot claim deductions under Section 80CCD(2).

Summary of Deduction Limits under Section 80CCD(2):

Particulars	Central / State Government Employer	Other Employer
New Regime	14% of salary (Basic + DA)	14% of salary (Basic + DA)
Old Regime	14% of salary (Basic + DA)	10% of salary (Basic + DA)

This section provides significant tax-saving opportunities for salaried individuals whose employers contribute to their NPS accounts.

Pension Schemes Covered under Section 80CCD

1. National Pension System (NPS)

The National Pension System (NPS) is a comprehensive retirement savings scheme regulated by the Pension Fund Regulatory and Development Authority of India (PFRDA).

NPS offers two types of accounts — Tier-I and Tier-II.
It is a market-linked scheme managed by various fund managers, and contributions made to NPS qualify for tax deductions under the Income Tax Act.

2. Atal Pension Yojana (APY)

The Atal Pension Yojana (APY) was launched by the Government of India to ensure financial stability for the economically weaker sections of society.

Indian citizens aged 18 to 40 years are eligible to join this scheme.
The minimum contribution depends on the subscriber’s age, starting from ₹42 for 18-year-old account holders.
The scheme guarantees a fixed pension amount after retirement based on the contributions made.

3. Unified Pension Scheme (UPS)

The Unified Pension Scheme (UPS) was introduced by the Central Government in 2024 as an alternative to the existing NPS.

This scheme provides a guaranteed return that is adjusted for inflation, reducing the uncertainties associated with NPS returns.
Existing NPS subscribers are given the option to switch their pension accounts to the Unified Pension Scheme.

4. NPS Vatsalya

The NPS Vatsalya Scheme focuses on securing the financial future of children.

Only minors can open this account, while parents or guardians manage and operate it.
Once the child turns 18 years old, the contributions made can be partially withdrawn as per scheme guidelines.

Terms and Conditions for Deductions under Section 80CCD

For government employees, contributions under Section 80CCD are mandatory, while for other individuals, participation is voluntary.
Tax benefits claimed under Section 80CCD cannot be claimed again under Section 80C. The combined deduction limit under both sections cannot exceed ₹2 lakh.
The amount received from NPS as pension payments or upon surrender is taxable as per the applicable income tax provisions.
Any amount reinvested in an annuity plan from NPS proceeds is completely exempt from tax, provided proof of reinvestment is furnished to claim the deduction.

Section 80CCD(1), 80CCD(1B) & 80CCD(2) – A Comparative Analysis

The National Pension System (NPS) offers multiple tax benefits under the Income Tax Act, 1961. These benefits are covered under Sections 80CCD(1), 80CCD(1B), and 80CCD(2). Below is a detailed comparison:

Particulars	Section 80CCD(1)	Section 80CCD(1B)	Section 80CCD(2)
Eligibility	Deduction for taxpayer’s own contribution to NPS.	Additional deduction for taxpayer’s own contribution to NPS.	Deduction for employer’s contribution to NPS.
Old vs New Regime	Available only under the old tax regime.	Available only under the old tax regime.	Available under both old and new tax regimes.
Eligible Assessee	Government employee, Non-Government employee, or Self-Employed individual.	Government employee, Non-Government employee, or Self-Employed individual.	Government or Non-Government employee. (Self-employed individuals not eligible).
Maximum Deduction Limit	₹1,50,000 (under Section 80CCE combined limit).	₹50,000 (over and above the ₹1.5 lakh limit).	No fixed monetary limit.
Deduction Criteria	– Salaried Employees: Up to 10% of salary (Basic + DA).- Self-Employed Individuals: Up to 20% of Gross Total Income.	Fixed amount of up to ₹50,000 for additional self-contribution.	– Central/State Government Employer: Up to 14% of salary (Basic + DA).- Other Employers:Old Regime – 10% of salary (Basic + DA).New Regime – 14% of salary (Basic + DA).

Key Highlights:

Total NPS deduction for an individual under the old regime can go up to ₹2,00,000 (₹1.5 lakh under 80CCD(1) + ₹50,000 under 80CCD(1B)).
Employer’s contribution under Section 80CCD(2) is available in both regimes and does not count towards the ₹1.5 lakh limit.
These deductions encourage long-term retirement savings through NPS while offering substantial tax relief.

Step-by-Step Guide to Claim Deductions under Section 80CCD

Claiming deductions under Section 80CCD of the Income Tax Act allows taxpayers to save tax while contributing toward their retirement through the National Pension System (NPS). Follow the steps below to claim your deduction correctly:

Step 1: Keep Necessary Documents Ready

If you are a salaried employee, refer to Form 16 — it contains the eligible deduction amount under this section.
Keep other essential details such as your PRAN (Permanent Retirement Account Number) handy.

Step 2: Verify Contribution Details

Ensure that the NPS contribution amount mentioned in Form 16 matches your salary slips.
Cross-check your NPS account transaction history to verify the actual amount contributed.

Step 3: Claim Deductions While Filing ITR

While filing your Income Tax Return, ensure that the deduction claimed under Section 80CCD is supported by valid proof.
Enter all relevant details correctly to avoid discrepancies during assessment.

Illustration

Let’s understand this with an example:

Mr. N, employed with X Ltd (an MNC), has the following salary structure:

Basic Salary: ₹3,00,000
Dearness Allowance: ₹80,000
Other Allowances & Perquisites: ₹2,00,000
Employer’s NPS Contribution: ₹70,000
Employee’s Own NPS Contribution: ₹30,000

Under the New Tax Regime

Mr. N can claim deduction under Section 80CCD(2) (employer’s contribution) — the lower of:
a. Employer’s NPS contribution = ₹70,000
b. 14% of Basic + DA = ₹42,000

✅ Deduction allowed under Section 80CCD(2): ₹42,000

Under the Old Tax Regime

Mr. N can claim deduction under Section 80CCD(1) (self-contribution) — the lower of:
a. NPS contribution = ₹30,000
b. 10% of Basic + DA = ₹30,000

✅ Deduction allowed under Section 80CCD(1): ₹30,000

Additionally, if the employer’s contribution qualifies, it can also be claimed under Section 80CCD(2).

Special Note

If Mr. N were a government employee, he could claim up to 14% of Basic + DA (₹42,000) as deduction under Section 80CCD(2).
If his total deduction under Section 80C is ₹1,30,000 and 80CCD(1) adds ₹30,000 (total ₹1,60,000), the excess ₹10,000 can be claimed under Section 80CCD(1B) — beyond the ₹1.5 lakh limit.

FAQs on Section 80CCD Deductions

1. What is the deduction limit under Section 80CCD(2) for an employer’s contribution to an NPS account?

Under Section 80CCD(2), an employee can claim a deduction for the contribution made by their employer to the National Pension System (NPS).

Under the new tax regime, the deduction limit is 14% of salary (Basic + Dearness Allowance) for all employees.
Under the old tax regime, the limit is 10% for private employees and 14% for central and state government employees.
Importantly, the combined limit of ₹1,50,000 under Sections 80C and 80CCE does not apply to deductions under Section 80CCD(2).

2. What is Section 80CCD(1B)?

Section 80CCD(1B) offers an additional deduction of up to ₹50,000 for individual taxpayers who make voluntary contributions to their NPS account.
This deduction is over and above the ₹1.5 lakh limit under Section 80C.
Hence, by combining Section 80C (₹1.5 lakh) and Section 80CCD(1B) (₹50,000), a taxpayer can claim a total deduction of up to ₹2 lakh.
This benefit is available only under the old tax regime.

3. What is the difference between Section 80CCD(1) and 80CCD(2)?

The key difference lies in who makes the contribution:

Section 80CCD(1): Deduction for the employee’s or self-employed individual’s own contribution to NPS.
- Limit: 10% of salary (Basic + DA) for salaried employees, and 20% of gross total income for self-employed individuals.
Section 80CCD(2): Deduction for the employer’s contribution to the employee’s NPS account.
- Limit: 10% (old regime) or 14% (new regime/government employees) of salary.

4. Can I claim both Section 80CCD(1) and 80CCD(2) deductions together?

Yes, if you have opted for the old tax regime, you can claim deductions under both Sections 80CCD(1) (for your own contribution) and 80CCD(2) (for your employer’s contribution) in the same financial year.
However, remember that the additional ₹50,000 under Section 80CCD(1B) is also available only under the old regime.

5. Can self-employed individuals claim deductions under Section 80CCD?

Yes, self-employed taxpayers can claim deductions under Section 80CCD(1) for their own contributions to the NPS.
They can claim up to 20% of their gross total income, subject to an overall ceiling of ₹1.5 lakh.
However, Section 80CCD(2) is not applicable to self-employed individuals since it relates to employer contributions.

6. Is the NPS tax deduction available under both old and new regimes?

Employee contribution (80CCD(1)) – Only under the old regime.
Additional contribution (80CCD(1B)) – Only under the old regime.
Employer contribution (80CCD(2)) – Available under both old and new regimes.

7. Does Section 80CCD include the Unified Pension Scheme (UPS)?

Yes. As per recent government notifications, all tax benefits available to NPS are now extended to the Unified Pension Scheme (UPS) as well.
Therefore, contributions made to UPS also qualify for deduction under Section 80CCD.

8. What happens to the maturity amount received from NPS?

The lump sum withdrawal from NPS at the time of retirement is partially exempt from tax — up to 60% of the corpus is tax-free, while the remaining 40% must be reinvested into an annuity plan, which is also exempt at the time of reinvestment.
However, the monthly pension received from the annuity is taxable as per your applicable income tax slab.