NPS offers three separate income-tax deductions, all under Section 80CCD. 80CCD(1) counts your own contribution inside the ₹1.5 lakh Section 80C ceiling, 80CCD(1B) adds an extra ₹50,000 on top of it, and 80CCD(2) covers your employer's contribution. Under the new tax regime, only the employer deduction, 80CCD(2), survives.
Getting the three sub-sections straight is what separates a modest tax break from the full one.
The three NPS deductions
What tax benefits does NPS give?
NPS deductions all live in Section 80CCD, which splits into three parts. Two of them cover your own contribution, and one covers your employer's. They stack, so a salaried person can, in the old regime, claim across all three. Here is how they line up.
| Section | Whose contribution | Limit | Sits inside 80C? |
|---|---|---|---|
| 80CCD(1) | Yours | Part of ₹1.5 lakh | Yes |
| 80CCD(1B) | Yours | Extra ₹50,000 | No, on top |
| 80CCD(2) | Employer's | Up to 14% of salary | No, separate |
80CCD(1): your contribution inside 80C
This is the base deduction for your own NPS contribution. It is not a fresh limit – it shares the crowded ₹1.5 lakh ceiling of Section 80C with items like PPF, EPF, life insurance premiums and ELSS. If those already fill your ₹1.5 lakh, 80CCD(1) adds nothing extra on its own. That is exactly why the next slot matters.
80CCD(1B): the extra ₹50,000
This is the deduction people mean when they call NPS tax-efficient. 80CCD(1B) gives you a further deduction of up to ₹50,000 for your NPS contribution, and it sits entirely over and above the ₹1.5 lakh limit. Fill 80C to the brim with other things, then park ₹50,000 into NPS, and you deduct a full ₹2 lakh of your own money in the year. This slot is unique to NPS – no other product opens it.
Take an illustrative case. Suppose you have already used your ₹1.5 lakh 80C limit on EPF, insurance and a child's tuition. Adding ₹50,000 to NPS then lets you claim the full ₹50,000 under 80CCD(1B), on top. At a 30% slab that is roughly ₹15,000 of tax saved on that ₹50,000 alone, purely as an illustration of the mechanism. If your 80C is not yet full, you can also count NPS there first under 80CCD(1) and then still add the separate ₹50,000. What you cannot do is claim the same rupee under both sub-sections.
80CCD(2): the employer contribution
The third deduction is not about your money at all. When your employer contributes to your NPS, that amount is deductible under 80CCD(2), currently up to 14% of your salary (basic plus dearness allowance) under the new regime, and up to 10% under the old regime for private employees. Government employees get 14% throughout. There is no rupee cap on the percentage itself, but employer contributions across NPS, EPF and superannuation above ₹7.5 lakh a year become taxable as a perquisite, which caps the benefit for high earners. Short of that ceiling, this can still be the largest of the three deductions. It is claimed on top of everything else and does not touch your own ₹2 lakh.
The catch is that this only works if your employer actually offers NPS as part of the salary structure. Many do, routing a slice of your cost-to-company into NPS instead of paying it as fully taxable salary. If yours does not, this deduction is simply unavailable to you, however much you contribute on your own. It is worth asking your payroll team whether a corporate NPS option exists.
Which NPS deductions survive the new regime?
Here is the part that changed the calculus. The new tax regime, now the default, strips out most deductions – 80C, 80CCD(1) and the ₹50,000 under 80CCD(1B) all go. What stays is 80CCD(2), the employer contribution.
So the regime you file under decides which of these three slots you can actually use. In the old regime, all three are open. In the new regime, only the employer route works, which is why salaried people increasingly ask their employer to route a share of their compensation through NPS.
Related NYVO guides
- What Is NPS? The National Pension System Explained – how the account, contributions and the 60/40 exit rule work.
- Old vs New Tax Regime: How They Differ – the deductions-versus-lower-slabs trade-off that decides which NPS breaks you can claim.
- Section 80C: The ₹1.5 Lakh Deduction – the shared ceiling that 80CCD(1) sits inside.
The NPS tax story is really about slots. Two are for your own money, one is for your employer's, and the regime you pick opens or closes them. Know which slot each rupee falls into before you decide how much to contribute.
