Deductions Under Section 80CCD of Income Tax

Updated on: Jun 12th, 2025

4 min read

Section 80CCD deals with deductions for contribution made to National Pension System and Atal Pension Scheme. Under this section, deduction up to Rs. 2 lakhs can be claimed, apart from employer's contribution which can be claimed under section 80CCD(2). Employer's contribution to NPS can be claimed as a deduction, up to 14% of the basic salary, under the new regime (10% of the basic salary for the old regime).

This article explains in details, the meaning, deduction eligibility, ceiling limits of deductions under section 80CCD with examples.

NPS Deduction under Section 80CCD

Section 80CCD relates to the deductions available to individuals against contributions made to the National Pension Scheme (NPS) or the Atal Pension Yojana (APY).
Contribution to NPS made by employers is also covered under this section.
Section 80CCD has been further divided into three subsections.
- 80CCD(1): Contributions made by the employee/self (salaried or self-employed) to NPS.
- 80CCD(1B): Additional deduction on contribution made by employee/self (salaried or self-employed) to NPS.
- 80CCD(2): Contributions made by the employer towards NPS.

NPS Deduction under the New Tax Regime - Section 80CCD(2)

Contribution made by employer to NPS scheme can be allowed as a deduction u/s 80CCD(2) of the Income Tax Act.
Section 80CCD(2) applies to only salaried individuals and not to self-employed individuals.
An employer can make contributions towards NPS in addition to those made towards PPF and EPF.
The contribution made by the employer can be equal to or higher than the employee's contribution.
Section 80CCD(2) allows a salaried individual to claim the following deduction:

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

NPS Deduction under the Old Tax Regime - Section 80CCD(1)&(1B)

Section 80CCD(1)

This subsection defines the rules related to income tax deduction available to taxpayers for contributions made to NPS.
This deduction is available only under the old tax regime.
The provisions of this section apply to all Indian citizens who are contributing to the NPS and are between the age of 18 to 70 years. This also applies to NRIs.

Deduction limits

Status of Employment	Maximum Deduction	Maximum Amount Allowed
Salaried Employee	10% of their salary (Basic + DA)	Rs 1.5 lakhs
Self Employed	20% of the Gross Total Income	Rs 1.5 lakhs

Additional Deduction u/s 80CCD(1B)

Section 80CCD(1B) provides an additional deduction of up to Rs 50,000 for contributions made to NPS over and above the deductions available under Section 80CCD(1), if they opt for the old tax regime.

Maximum deduction under Sections 80C + 80CCC + 80CCD(1) is Rs 1.5 lakh
Rs 50,000 under Section 80CCD(1B) is in addition to the overall limit of Rs 1.50 lakh

Thus, the maximum deduction available under Section 80CCD is Rs 2 lakhs (Rs 1,50,000 + Rs 50,000) .

80CCD(1), 80CCD(1B) and 80CCD(2) - A Comparative Analysis

Particulars	Section 80CCD	Section 80CCD(1B)	Section 80CCD(2)
Eligibility	Deduction for tax payer's contribution to NPS	Additional deduction for tax payer's contribution to NPS.	Deduction for employer's contribution to NPS.
Old Vs New Regime	Available only under old tax regime	Available only under old tax regime	Available under both old and new tax regime
Employment Status	Assessee can be Government employee (or) Non Government employee(or) Self- Employed	Assessee can be Government employee (or) Non Government employee(or) Self- Employed	Assessee can be Government Employee (or) Non Government Employee. Self employed assessees not eligible for this deduction
Maximum Amount of Deduction Allowed	Rs.1,50,000	Rs.50,000	No monetary limit fixed.
Deduction Limits	Salaried Employee - 10% of their salary (Basic + DA) Self Employed - 20% of the Gross Total Income		Central / State Government Employer - 14% of salary (Basic + DA) Other Employer - Old Regime - 10% of salary (Basic + DA) - New Regime - 14% of salary (Basic + DA)

Atal Pension Yojana v/s National Pension Scheme - An Analysis

The following table describes salient features of Atal Pension Yojana (APY) and National Pension Scheme (NPS).

Particulars	National Pension Scheme	Atal Pension Yojana
Optional or Mandatory	While it is mandatory for Central Government employees, it is voluntary for other individuals.	It is optional for both government employees and other individuals.
When can I open an account?	Until 70 years.	From 18 to 40 years, as it requires a minimum period of 20 years.
Period of Withdrawal	At the age of 70 years. In case of death.	At the age of 60 years. In case of death.
Minimum Contribution	Tier - 1 Account - Rs.6,000 per annum(Rs.500/month) Tier - 2 Account - Rs 3,000 per annum(Rs.250/month)	Depends on the age of the individual while opting for the scheme and the monthly pension amount he requires
Tax Deductions	Deduction under section 80CCD(1) , 80CCD(1B) and 80CCD(2) are available. Self-employed individuals can claim a deduction of a maximum of Rs 1.5 lakhs for APY investments that are up to 20% of their annual income	Deduction under section 80CCD(1) , 80CCD(1B) and 80CCD(2) are available Self-employed individuals can claim a deduction of a maximum of Rs 1.5 lakhs for APY investments that are up to 20% of their annual income.
Premature Withdrawals	Permitted	Permitted
Investment Options	You can choose from various investment options, such as Equity funds, Government bonds, and Government securities.	The amount contributed is invested as per investment guidelines.

Terms and Conditions for Deductions u/s 80CCD

Following are the various terms and conditions governing the deductions under Section 80CCD.

Deductions under Section 80CCD is mandatory for government employees, for other individuals, it is voluntary.
The maximum deduction limit available under Section 80CCD is Rs 2 lakhs; this includes the additional deduction of Rs 50,000 available under 80CCD(1B).
Tax benefits availed under Section 80CCD cannot be claimed again under Section 80C, i.e. the combined deduction under Section 80C and 80CCD cannot exceed Rs 2 lakhs.
The money received from NPS as monthly payments or surrendered accounts will be liable for taxation as per the applicable provisions.
Any amount received from NPS reinvested in the annuity plan is entirely exempt from taxation. You will be required to produce proof of payment to be eligible for this deduction.

Illustration

Mr N is a central government employee, and the government contributes Rs 70,000 to the NPS account. His salary structure is as below:

Basic Salary – Rs 2,20,000
Dearness allowance – Rs 80,000
Other Allowances and Perquisites – Rs. 2,00,000

Employer's NPS Contribution - Rs 70,000

Tax Deduction under the New Regime:

Now, he can claim under section 80CCD(2), i.e. lower of the following-
a. NPS contribution- Rs 70,000
b. 14% of basic and dearness allowance- Rs 42,000
Rs. 42,000 can be claimed as a deduction under section 80CCD(2).

Tax Deduction under the Old Regime:

Now, he can claim under section 80CCD(2), i.e. lower of the following-
a. NPS contribution- Rs 70,000
b. 10% of basic and dearness allowance- Rs 30,000
Rs. 30,000 can be claimed as a deduction under section 80CCD(1)

If he has deductions under section 80C, of Rs. 1,30,000 already, the total deductions - 80C plus 80CCD(1) comes to Rs.1,60,000, exceeding Rs. 1,50,000. At this point, the taxpayer can make use of section 80CCD(1B), and claim the excess Rs.10,000.

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Frequently Asked Questions

What is section 80CCD (1B)?

Section 80CCD(1B) specifically deals with contributions made by an individual (employee or self-employed) to pension schemes as notified by the central government. This section provides an additional deduction of Rs 50,000 over and above the 80C limit of Rs 1.5 lakh. This means an individual can claim a total deduction of Rs 2 lakh by making investments in 80C and contribution for the National Pension Scheme u/s 80CCD (1B).

What is the deduction limit under section 80CCD for an employer's contribution to an NPS account?

Employer's contribution to NPS is allowed as a deduction under section 80CCD (2) while computing the employee's total income. However, the amount of deduction cannot exceed 14% of the salary in the case of government and other employees under the new tax regime and 10% in the case of other employee under the old tax regime. The combined limit of Rs.1,50,000 does not apply to section 80 CCD(2).

If I am opting for the New Tax Regime during the AY 2024-25, what is the maximum limit of deduction available for contribution towards NPS?

The taxpayer's contribution towards NPS can be deducted from the Gross Total Income under three separate sections of the Income-tax Act, 1961: Sec 80CCD(1), 80CCD(1B), and this benefit is available only under the old tax regime. This limit is not applicable to section 80CCD(2) - Employer's contribution to NPS.

Whereas if the new tax regime is selected, then deduction for the employer’s contribution towards the employee’s NPS a/c is available. The deduction would be restricted to 14% of the salary.

What is the difference between 80CCD(1) and 80CCD(2)

80CCD(1) is deduction based on the contributions made by employee/self to NPS and 80CCD(2) is for the contributions made by employer towards NPS.

Can I claim both section 80CCD(1) and 80CCD(2) together?

If you opt for old regime, you can claim deductions under both 80CCD(1) and 80CCD(2) for the same financial year.

About the Author

Chandni Anandan

Tax Content Writer

I’m a Chartered Accountant with a deep interest in Direct Tax Laws, drawn to the fascinating blend of numbers and legal provisions. Right from my preparation days, I had specific attraction on areas where tax provisions are often difficult to interpret, aiming to simplify and make them easily understandable.I stay updated by connecting with other professionals and closely following industry news and media.My approach to writing is straightforward and comprehensive, ensuring that even complex topics are accessible to a wide audience.. Read more

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