Section 80CCD(1B) NPS Deduction FY 2025-26: Extra ₹50,000 Over 80C
Section 80CCD(1B) allows an additional deduction of ₹50,000 for your own contribution to NPS Tier 1, over and above the ₹1,50,000 limit of section 80C, under the old regime only. Employer contribution to NPS under section 80CCD(2) is separate and is allowed in both regimes, up to 14% of basic plus DA under the new regime and 10% under the old regime for private employees.
Key facts, FY 2025-26
- Extra deduction
- ₹50,000 for own NPS Tier 1 contribution
- Relationship to 80C
- Over and above ₹1,50,000, so up to ₹2,00,000 in total
- Regime for 80CCD(1B)
- Old regime only
- Employer NPS u/s 80CCD(2)
- Both regimes: 14% of basic plus DA (new), 10% (old, private sector), 14% for government employees
- Who can claim
- Individuals aged 18 to 70 with an NPS Tier 1 account
- Tier 2
- No deduction for Tier 2 (except central government employees with 3-year lock-in)
How it works
The National Pension System gets three separate tax treatments under the Income-tax Act 1961, and most confusion comes from mixing them up. Section 80CCD(1) covers your own contribution and sits inside the ₹1.5 lakh cap shared with 80C. Section 80CCD(1B) gives an additional ₹50,000 for your own contribution, outside that cap. Section 80CCD(2) covers what your employer puts in, and is outside both.
For a self-employed person or a salaried employee whose employer does not offer NPS, the practical rule is simple: the first ₹1.5 lakh of your own NPS contribution competes with PPF, EPF and ELSS under 80C, and the next ₹50,000 goes to 80CCD(1B). You can choose to route the first ₹50,000 to 80CCD(1B) and keep 80C for other instruments; the section does not fix the order.
The employer route matters more from FY 2025-26 because it is the only meaningful deduction left under the new regime. Under section 80CCD(2), an employer contribution of up to 14% of basic plus dearness allowance is deductible under the new regime. Under the old regime the private sector cap is 10%, with 14% for central and state government employees. The contribution is first added to your salary and then deducted, so it appears in Form 16 both ways.
What you get for the deduction is a retirement account with a long lock-in. NPS Tier 1 money stays until age 60, with partial withdrawals of up to 25% of your own contributions allowed after three years for specific purposes such as a child's education, a house or a medical emergency. At 60, up to 60% of the corpus can be taken tax-free and at least 40% must buy an annuity whose income is taxed at slab rates. That trade-off is why 80CCD(1B) suits people who are already saving for retirement, and suits a 28-year-old who may need the money for a house deposit less well.
| Section | Who contributes | Limit FY 2025-26 | Old regime | New regime |
|---|---|---|---|---|
| 80CCD(1) | You | Within the ₹1,50,000 80C cap; 10% of salary or 20% of gross income for self-employed | Yes | No |
| 80CCD(1B) | You | ₹50,000 extra | Yes | No |
| 80CCD(2) | Employer | 14% of basic plus DA (new regime), 10% private or 14% government (old regime) | Yes | Yes |
Worked example: Salaried employee, basic plus DA ₹6,00,000, filing under the old regime
- EPF and PPF already claimed under 80C
- ₹1,50,000
- Own NPS contribution
- ₹50,000
- Deduction under 80CCD(1B)
- ₹50,000
- Employer NPS contribution (10% of ₹6,00,000)
- ₹60,000
- Deduction under 80CCD(2)
- ₹60,000
- Total NPS-related deduction
- ₹1,10,000
- Tax saved at 30% plus cess
- ₹34,320
The new-regime caveat
If you file under the new regime, 80CCD(1B) gives you nothing, but 80CCD(2) still does. Ask your employer to restructure part of your CTC as employer NPS contribution up to 14% of basic plus DA. It lowers taxable salary under either regime and is the one lever a new-regime filer still has. The common mistake in the other direction is contributing to NPS Tier 2 and claiming 80CCD(1B). Tier 2 is a voluntary savings account with no tax benefit for private taxpayers; only Tier 1 contributions qualify. And employer contributions above ₹7.5 lakh a year across EPF, NPS and superannuation together are taxable as a perquisite.
What to do next
Download the Tier 1 transaction statement from the CRA portal (Protean or KFintech) for 1 April 2025 to 31 March 2026 and split it into your contribution and employer contribution. Report your own contribution against 80CCD(1) and 80CCD(1B) in Schedule VI-A, and the employer share against 80CCD(2). Check that the employer figure matches Form 16. If you have not yet contributed this year and are on the old regime, ₹50,000 into Tier 1 before 31 March saves up to ₹15,600 at the top slab. Contribute a few days early: the deduction is on the date the money is credited to the CRA, not the date you initiate the transfer, and a 31 March payment that lands on 2 April belongs to next year. If you do not have an account yet, an eNPS account opens online with PAN and Aadhaar in about ten minutes, and the first contribution can go through the same day.
Section 80CCD(1B): questions
What is the maximum deduction under section 80CCD(1B)?
₹50,000 per year for your own contribution to NPS Tier 1. This is over and above the ₹1,50,000 limit of section 80C, so total NPS-linked deductions for your own money can reach ₹2,00,000.
Is 80CCD(1B) available in the new tax regime?
No. Section 80CCD(1B) is available only under the old regime. Under the new regime, only the employer contribution under section 80CCD(2) is deductible.
How much employer NPS contribution is deductible under 80CCD(2)?
Up to 14% of basic plus DA under the new regime for all employees. Under the old regime the limit is 10% for private sector employees and 14% for central and state government employees. There is no rupee cap, but employer contributions to EPF, NPS and superannuation above ₹7,50,000 a year become taxable.
Can I claim 80CCD(1B) and 80C both for NPS?
Yes. The first ₹1,50,000 of your own contribution can be claimed under 80CCD(1) within the 80C cap, and the next ₹50,000 under 80CCD(1B). Most taxpayers fill 80C with EPF and PPF and use NPS only for the ₹50,000.
Does NPS Tier 2 get any tax deduction?
No, not for private sector taxpayers. Tier 2 is a savings account without a lock-in and without a deduction. Central government employees can claim Tier 2 under 80C with a 3-year lock-in.
Can a self-employed person claim 80CCD(1B)?
Yes. Any individual aged 18 to 70 with an NPS Tier 1 account can claim ₹50,000 under 80CCD(1B). For self-employed taxpayers, 80CCD(1) is limited to 20% of gross total income within the 80C cap.
Is NPS withdrawal taxable?
At 60, up to 60% of the corpus can be withdrawn tax-free. The remaining 40% must buy an annuity, and the annuity income is taxed at slab rates each year.
Related sections and forms
- Section 80CSection 80C allows a deduction of up to ₹1,50,000 a year from your gross total income for investments and payments such as PPF, EPF, ELSS, life insurance premium, NSC, 5-year tax-saver FD, Sukanya Samriddhi, tuition fees and home loan principal. It is available only under the old tax regime. At the 30% slab the full limit saves ₹46,800 including cess.
- Section 80DSection 80D allows a deduction of up to ₹25,000 for health insurance premium paid for yourself, spouse and dependent children, rising to ₹50,000 if any of you is a senior citizen. A further ₹25,000 is allowed for parents, or ₹50,000 if they are senior citizens, so the maximum is ₹1,00,000. Preventive health check-ups up to ₹5,000 count within these limits. Old regime only.
- Form 16Form 16 is the TDS certificate an employer issues to every employee whose salary tax was deducted, due by 15 June 2026 for FY 2025-26. Part A is generated on TRACES and shows quarter-wise TDS deposited against your PAN; Part B is the employer's breakup of salary, exemptions, deductions and tax. You use it to fill the salary and TDS schedules of ITR-1 or ITR-2 by 31 July 2026.
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General information for FY 2025-26, not professional advice. Limits and dates change with each Budget; the updated date above is when this page was last checked. Disclaimer