NPS: National Pension System Tax Benefits#
Section 80CCD#
Only the employer-contribution deduction (80CCD(2)) is available if you've opted for the New Tax Regime. 80CCD(1) and 80CCD(1B) apply under the Old Regime only.
80CCD(1) - Employee Contribution (Old Regime only)#
- Deductible under 123
- Max: ₹1,50,000
- Combined limit with 123
80CCD(1B) - Additional (Old Regime only)#
- Extra ₹50,000 deduction
- Over and above 123
- For NPS only
80CCD(2) - Employer (Old Regime and New Regime)#
- Employer's contribution to your NPS account
- Old Regime: up to 10% of Basic + DA
- New Regime: up to 14% of Basic + DA (raised from 10% in Budget 2025, and equalized with the rate government employees already had)
- Not included in the 123 limit
Tax Benefits#
- 80CCD(1): In 123 limit — Old Regime only
- 80CCD(1B): Extra ₹50,000 — Old Regime only
- 80CCD(2): Additional benefit — available under both regimes, and the only one of the three that survives if you pick the New Regime
Withdrawal Rules#
Partial Withdrawal#
- After 3 years
- Up to 25%
- For specific purposes
On Maturity#
- 60% tax-free
- 40% must buy annuity
- Annuity is taxable
Conclusion#
NPS provides excellent tax benefits for retirement.