NPS Tax Benefit u/s 80CCD(1), 80CCD(2) and 80CCD(1B)

In last few weeks I have got several mails and comments asking about the tax benefit on NPS. This post explains the tax deduction available for NPS under 3 sections: 80CCD(1), 80CCD(2) and 80CCD(1B).

Tax Benefit on NPS Tier 1 and/or 2?

NPS has two Tiers – 1 and 2.

NPS Tier 1 is the long term investment, which has restricted withdrawals and meant primarily for retirement planning. On maturity, you can withdraw maximum of 60% of corpus as lumpsum and rest has to be used for annuity purchase.

NPS Tier 2 is for managing short to medium term investment. You can invest and withdraw anytime as per your wish. This is an optional feature and you are asked if you need Tier 2 account while opening NPS.

All the tax benefit related to NPS is available to investment in NPS Tier 1 account only.

Also Read: When and How can Tax Benefits Claimed Earlier be Reversed?

NPS - Tax Benefits

NPS – Tax Benefits

NPS Tax Benefits:

NPS tax benefits are available through 3 sections – 80CCD(1), 80CCD(2) and 80CCD(1B). We discuss each below:

1. Section 80CCD(1)

Employee contribution up to 10% of basic salary and dearness allowance (DA) up to 1.5 lakh is eligible for tax deduction. [This contribution along with Sec 80C has 1.5 Lakh investment limit for tax deduction]. Self employed can also claim this tax benefit. However the limit is 10% of their annual income up to maximum of Rs 1.5 Lakhs.

2. Section 80CCD(1B)

Additional exemption up to Rs 50,000 in NPS is eligible for income tax deduction. This was introduced in Budget 2015.

Also Read: Should You invest in NPS to take tax benefit u/s 80CCD(1B)

3. Section 80CCD(2)

Employer’s contribution up to 10% of basic plus DA is eligible for deduction under this section above the Rs 1.5 lakh limit in Sec 80CCD(1). This is also beneficial for employer as it can claim tax benefit for its contribution by showing it as business expense in the profit and loss account. Self employed cannot claim this tax benefit.

Below is the illustration on how introducing NPS can help you save tax under Section 80CCD(2).

NPS - Illustration of Tax Exemption on Employer Contribution

NPS – Illustration of Tax Exemption on Employer Contribution

Tax Benefit for Compulsory NPS deduction:

The earlier pension structure was replaced by NPS in most central and state government jobs since 2004. So anyone who joined after that has compulsory deduction for NPS. The deduction is 10% of basic salary and dearness allowance (DA) and the employer too contributes the matching amount. The confusion for most employees is how they take tax benefit on their compulsory NPS deduction?

Here is an example:

Amit is a government employee and his employer deducts Rs 62,000 per annum (which is 10% of basic + DA) from salary as employee’s contribution in NPS. It also deposits Rs 62,000 per annum as employer’s contribution in NPS. How and under which section should he claim tax benefit on NPS?

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Let’s take the easy part first. Employee’s contribution in NPS would be eligible for tax deduction u/s 80CCD(1).

The employee has a choice as to which section [80CCD(1) or 80CCD(1B)] he wants to show his contribution.  Ideally he should show Rs 50,000 investment in NPS u/s 80CCD(1B). The tax deduction on rest Rs 12,000 can be claimed u/s 80CCD(1). The section 80CCD(1) along with Section 80C has investment limit eligible for tax deduction as Rs 1.5 lakhs. So he should make additional investment of Rs 1,38,000 in Section 80C to save maximum tax. In all he can save Rs 2 lakhs tax u/s 80C and 80CCD(1B).

I hope this would have cleared the confusion on how NPS helps you save tax.

390 thoughts on “NPS Tax Benefit u/s 80CCD(1), 80CCD(2) and 80CCD(1B)

  1. Hi Amit,

    I have below doubts on NPS and rajiv gandhi equity savings scheme.

    1.Do we get any other benefit other than tax exemption like returns.

    Approximate how much we can expect returns

  2. I am a stat government employee in chhattisgarh. Here 10% of my sallery is deducted every month and credited to my CPS (contributory pension scheme) Account in NPS. While Filling ITR under which section should I mention that deduction to claim tax benefits. Should it be 80ccd(1) or (1b).

  3. Dr shaifali says:

    For taking benefit of HOME loan interest possession letter is compulsory.

    Gst paid on home loan comes under rebate ir not.
    My EMI started on 20 jan 18. I got possession letter on 17 feb 18. EMI OF jan will be added for rebate or not.

    If I want to take hl interest benefit of 50000 on accrual basis can I take it. This can be taken during 2017-18 fy or not

    • There is NO GST on EMI.

      for home loan interest of the entire financial year is considered irrespective of when you got possession in the financial year. So EMI of Jan would be eligible for rebate!

  4. Niraj Gupta says:

    सर मैं Government Service में हूँ और मेरा कुल Net वेतन ₹528778/- हैं और Lic ₹53488/- एवं PPF में ₹100000/- investment हैं। NPS में कुल ₹58115/- जमा हैं। मुझे कुल कितना टैक्स लाभ मिलेगा???? 80CCD(2) के तहत मुझे NPS का कुल 58115 पर टैक्स लाभ मिलेगा या केवल 50000 पर????

    • you can total of 2 lakhs tax exemption. LIC + PPF u/s 80C would be 1.5 lakhs and NPS Rs 50,000 u/s 80CCD(1B) – taking total to 2 lakhs

      • Amit ji Main thoda confuse hun pls clear kariyega…
        Niraj ji Govt Emplyee hai unke NPS Account ke 2 Contribution (Compulsory) hote hai.
        1. 10% of Salary ka Emplyer Contr.=58115.00 jo 80CCD(1) ke tahat rebate milega (jo ki 80C me other rebate me shamil hoga upto limit 1.50 lac)
        2. 10% of Salary ka Govt. Contr.=58115.00 (jo ki under 80CCD(2) ke tahat rebate milna chahiye above 1.50 lac)
        is prakar aapke dwara uper total 2.00 lac ka exemption bataya gya hai or mere anusaar 208115.00 ka milna chahiye….

        please clear kariyega bahut confusion hai…

      • Sir,
        While i am contributing in both the tiers ( Tier 1 & Tier 2), under which tier amount invested will be exempted from Income Tax, or total amount with both the tiers amount invested.

  5. B.Suresh Kumar says:

    Sir, I and Andhra Pradesh state Government employee, my lic, ppf and tution fee is Rs.1,50,000/- and my CPS contribution of employee is Rs.1,06,000/-. Can I take this CPS amount Rs.50,000/- in 80CCD(1B)

  6. Sir my contribution in 80c is 150000.if my Nps share z 76000.How much amount will be deducted frm my Gross Salary. sir z it 1.5 or 2 lacs

  7. Sir,

    My Investment under 80c is RS.135000/- and NPS is Rs.45000/-

    Please guide me how to show my deduction.

    • Take NPS investment of Rs 45,000 u/s 80CCD(1B) and Rs 1,35,000 u/s Sec 80C. So total tax exemption would be Rs 1.8 Lakhs

  8. Sir
    My saving u/s 80c is 15000 from olnly from lic and other saving plans not from NPS. I hv my contri in nps 50000.
    Can i contribute 50000 80ccd1b for taking benefit if 1.5 lakh+50000.

  9. Praveen Sinha says:

    Mera LIC, PPF & Tution Fee total 175300 hai aur NPS me contribution 59600 Hai.
    50000.00 ka deduction to taxable income se pahle 80 ccd 1 b me less kar dunga lekin Mai NPS ki Amount 59600.00 ko Kaha par income tax ke format me dikhaunga ? total mera contribution, Investment & Savings 234900.00 hai

    • Max tax exemption would be Rs 2 lakhs irrespective of your investment being more than that. While filing ITR there is option to show NPS contribution u/s 80CCD(1B)

  10. Please guide us, as suggested by you to split 80ccd1 in CCD 1 and ccd(1b), how can employers deposit their equal share for ccd2 on reduced amount as no share is deposited against ccd(1b)

  11. Please send letter of income tax department that shows to change cpf deduction under 80ccd1 to 80ccd(1b)

  12. मैं एक सरकारी शिक्षक हूं मेरी नियुक्ति 2010 मैं झारखंड सरकार के द्वारा उच्च विद्यालय में सहायक शिक्षक के रूप में पदस्थापित हूं मैं अंशदाई पेंशन योजना के तहत मेरी कटौती प्रति वर्ष मेरे वेतन और महंगाई का 10 परसेंट आनी इस वर्ष 74007 रुपैया कटा है एवं 74007 रुपैया राशि सरकार द्वारा दी गई है और वर्तमान में मेरा कुल आय 7682 57 रुपए है सरकार द्वारा दी गई अनुदानित राशि सम्मिलित नहीं किया गया है क्या इसमें सरकार द्वारा दी गई अनुदानित राशि को जोड़ना अनिवार्य है या नहीं टैक्स बेनिफिट इस संबंध में कहना है कि अब मेरे पास एटीसी के तहत 1 लाख ₹25000 तथा मेरे द्वारा अनुदानित 74007 रुपैया को किस प्रकार 80c and 80ccd के तहत आयकर मैं कटौती लिया जा सकता है कृपया से सलाह दी जाए

  13. Sir
    My saving u/s 80c is 125000. I hv my contri in nps 75229.
    Can i split nps amount 25000 in 80c n 50000 in 80ccd1b for taking benefit if 1.5 lakh+50000.

  14. Whether a state govt. employee can claim deduction under section 80-ccd(2) for the amount of his employer’s contribution (10% of Basic + DA)?

    • Yes but you should first add that to your income and then claim exemption. In most cases your Form 16 does not have this contribution counted as income and hence no additional exemption is available. But in case this is added to your income then you can claim exemption u/s 80CCD(2)

  15. Dhananjay kumar says:

    My salary is Rs.909321 including employer contribution in NPS Rs. 82451(10%) and my contribution is Rs 82451 , other investment for qualifying u/s 80c is Rs 125000. Please suggest me how can I compute my salary and deduction u/ 80c, 80ccd(1),80ccd(1b) and 80ccd(2)

    • You can claim Rs 50,000 u/s 80CCD(1B); Rs 32,451 u/s 80CCD(1) which together with 80C has limit of Rs 1.5 lakh. As you have added employer contribution to your income, you can dedcut Rs 82,451 u/s 80CCD(2)

      • My contributions in NPS is74007 and govt contributions is also 74007rs and others under 80c is 1250000 rs how I managed u/c 80c,80ccd1 and 80ccdB as tax benefit

        • Take tax benefit of Rs 50K u/s 80CCD(1B) and Rs 24,007 u/s 80CCD(1). The combined limit for 80C + 80CCD(1) is 1.5 lakh. So you can still invest Rs 1000 u/s 80C. Also employer contribution is exempted from tax u/s 80CCD(2). Use this only after adding this portion to your income and then subsequent deduction!

      • what is limit of deduction under section 80 CCD (2) 10% of basic and DA is known but what is maximum higehr limit to it – whether 50K, 1 Lakh or 1.5Lakh….likewise how much maximum upper limit for this deduction.

        • There is NO upper limit…. similar to EPF where there is NO limit to employer contribution and depends on employee basic salary + DA

  16. Chander Shekhar says:

    My saving under ppf is 1.5lakh ….my nps contribution is 48000….can i take 50000 extra benefit upto 2lakh

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