Deductions and exemptions · Tax Year 2025-26
Section 80CCD(2): employer NPS contribution
When your employer pays into your NPS account, section 80CCD(2) lets you deduct it, up to 14% of salary in the new regime. It is one of the few deductions that works in both regimes. See the limits and examples.
On this page
Section 80CCD(2) lets you deduct the amount your employer contributes to your NPS account. In the new regime the limit is 14% of your salary for every employer. In the old regime it is 14% for Central or State Government employers and 10% for others. It is one of the few deductions that also works in the new regime.
The limits here are those TaxCare applies for the tax year 2025-26 and are signed off. The tax year 2026-27 carries them forward provisionally; they are not yet signed off against the Income-tax Act, 2025.
From the tax year 2026-27 this deduction moves into the Income-tax Act, 2025 under a new section number. This guide uses the 1961 Act number you will see on Form 16 and older forms.
The limits by regime and employer
Regime | Employer | Limit on the deduction |
|---|---|---|
Old | Central or State Government | 14% of salary |
Old | Any other employer | 10% of salary |
New | Any employer | 14% of salary |
"Salary" for this limit means your basic pay plus dearness allowance, the base the CBDT validation rules use. Other allowances and perquisites are not part of it. The part of the employer's contribution above the limit is not deducted, so it stays in your taxable income.
How it differs from 80CCD(1) and 80CCD(1B)
Provision | Who pays | Cap | Regime |
|---|---|---|---|
80CCD(1) | You | 10% of salary if employed; 20% of gross total income if self-employed; counts within the ₹1,50,000 aggregate with 80C and 80CCC | Old |
80CCD(1B) | You | Extra ₹50,000 over and above the aggregate | Old |
80CCD(2) | Your employer | 14% or 10% of salary as above; separate from both of the others | Old and new |
So an employee in the old regime can combine all three: ₹1,50,000 (80C aggregate including 80CCD(1)) + ₹50,000 (80CCD(1B)) + the employer's contribution (80CCD(2)).
Examples
These use TaxCare's engine for the tax year 2025-26, salary only, below 60. They are illustrations.
Example 1: salary ₹20,00,000, employer pays ₹1,40,000 into NPS (7% of salary)
- New regime tax without the NPS deduction: ₹1,92,400. With it: ₹1,63,280. Saving: ₹29,120.
- Old regime tax without: ₹4,13,400. With it: ₹3,69,720. Saving: ₹43,680.
Example 2: salary ₹15,00,000, employer pays ₹1,00,000
- New regime tax without: ₹97,500. With it: ₹81,900. Saving: ₹15,600.
Example 3: salary ₹10,00,000, employer pays ₹70,000
- New regime tax is nil in both cases because of the rebate. The deduction does not save anything at this salary.
The saving is largest for people at higher slabs and zero for those whose tax is already nil. Because the deduction applies in both regimes, it does not by itself decide which regime is better. See is the new tax regime better for you.
How the employer contribution shows up
The employer's contribution is included in your salary on Form 16, and the deduction under 80CCD(2) reduces your taxable income. Check your Form 16 and your NPS statement to see the amount. If the contribution is part of your salary but your return does not claim the deduction, you pay more tax than you need.
Can I ask my employer to start this?
A contribution made by your employer is deductible in the new regime, unlike your own contributions. Whether your employer offers NPS, and on what terms, is its own decision, so ask your HR team about the process and the limits.
Who is covered
- Employees of the Central and State Governments and the private sector whose employer contributes to NPS.
- The deduction is for the employer's contribution only. Your own contributions are under 80CCD(1) and (1B), which apply in the old regime.
Mistakes to avoid
- Counting your own NPS contribution under 80CCD(2) in the new regime. It does not qualify.
- Mixing up the caps. The 14% and 10% limits are on salary, not on the ₹1,50,000.
- Forgetting to claim it. It is in Form 16 and TaxCare brings it in, but check.
How TaxCare helps
TaxCare reads the employer's NPS contribution from your salary data, applies the right percentage for your regime and employer, and shows how much tax it saves in each regime. It then compares the two regimes with this deduction included. For doubts you can ask a Tax Expert. See pricing, and read old vs new tax regime.
This guide gives general information and is not professional tax advice.
Questions on this topic
How much can I deduct under 80CCD(2)?
In the new regime, up to 14% of salary for every employer. In the old regime, 14% if your employer is the Central or a State Government and 10% for other employers.
Does 80CCD(2) count within the ₹1,50,000 limit of 80C?
No. Section 80CCD(2) is separate from the ₹1,50,000 aggregate of 80C, 80CCC and 80CCD(1), and from the ₹50,000 of 80CCD(1B).
Can I claim 80CCD(2) in the new regime?
Yes. It is the one significant Chapter VI-A deduction that remains in the new regime.
Is my employer's contribution taxed?
It is part of your salary income and shown in Form 16, and the deduction takes it out again, up to the limit. The deduction stops at the limit, so any contribution above it stays in your taxable income.
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