NPS is one of the few investments that offers three separate, stackable tax deductions — and one of them, unlike almost every other Section 80 deduction, still works even if you've moved to the new tax regime.
80CCD(1): your own contribution, inside the 80C limit
Your personal NPS contribution is deductible up to 10% of salary (basic + DA), but this deduction sits inside the overall ₹1.5 lakh Section 80C ceiling— shared with PF, ELSS, life insurance premiums, and everything else under 80C. If you're already maxing out 80C elsewhere, this slice of NPS doesn't add any extra deduction on its own.
80CCD(1B): the extra ₹50,000, outside 80C
This is the one most people mean when they say "NPS tax benefit." You can claim an additional ₹50,000 deduction, over and above the ₹1.5 lakh 80C limit, for NPS contributions specifically. This is available only under the old tax regime.
80CCD(2): employer contribution, and the one that survives the new regime
If your employer contributes to your NPS account as part of your CTC structure, that contribution is deductible separately — up to 10% of salary for private-sector employees (14% for government employees), and it doesn't count against the 80C limit at all. Crucially, 80CCD(2) remains available under the new tax regime, where 80C and 80CCD(1B) are both unavailable. For salaried employees who've switched to the new regime, asking an employer to route part of CTC through NPS under 80CCD(2) is one of the few tax-efficient levers still on the table.
| Section | Who contributes | Limit | Old regime | New regime |
|---|---|---|---|---|
| 80CCD(1) | Employee | 10% of salary, within ₹1.5L 80C cap | Yes | No |
| 80CCD(1B) | Employee | ₹50,000, additional | Yes | No |
| 80CCD(2) | Employer | 10-14% of salary, no 80C cap | Yes | Yes |
Tax on the way out
At maturity, up to 60% of the corpus can be withdrawn as a lump sum, and that portion is entirely tax-free under Section 10(12A). The remaining 40% must be used to buy an annuity, and the pension income you receive from that annuity is taxed as regular income in the year you receive it — the tax isn't avoided, just deferred and spread across your retirement years.
Project your NPS corpus
Use the NPS Calculator to estimate your retirement corpus, the mandatory annuity split, and the monthly pension it would generate.