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?

Download: Free ebook for Income Tax Planning for FY 2018-19

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. Clarification
    i am a tn state govt employee.
    i contributed Rs72,000 in contributed pension scheme in 2017-2018
    and also save money in lic Rs1,00,000 in 2017-2018
    i paid principleamout of my housing loan Rs.28,000.
    My total deductions in under sec VIA is Rs.2,00,000.
    May i get exemption Rs 50,000 of my cps amout in under sec 80ccd(b1) and 1,50,000 in sec 80cc(1).
    pls explain .send me anyIT rule or section.
    Thank You

    • Chapter VIA includes 80C & 80CCD(1B) – which makes it 2 lakhs in your case. There would be no additional tax benefit u/s 80CCD(1) or 80CCD(1B)

  2. sir I invested 15000 in ppf under 80c.my employee cocintributin is11700.may i claim this 117000 in 80ccd 1b.

  3. I m government teacher my NPS contribution is 52000, and 80c investment 150000 , government (employer) contribution is also 52000. How much I can claim in tax benefits

  4. dear sir, can i take benefit 80c 1.5k and nps 80ccd 1.5 & 80ccd1b 50k separately means total benefits 3.5k fy 2017-18 so plz guide

  5. JAYDIPSINHJI D DABHI says:

    DEAR SIR MY TOTAL INCOME IS 558082 AND MY 80 C DEDCTION IS 160000 (WITHUOT NPS)
    AND MY NPS EMPLOYER CONTR 52175
    AND GOVT. CONTRIBUTION 52175
    HOW TO CALCULATE MY INCOME TAX

  6. The basic salary of Gopi Is ₹100,000pm. He is entitled to DA, which is 40% basic salary. 50%of dearness allowance forms part of pay for retirement benefits. Both Gopi and his employer contributed 15% of basic salary to pension scheme referred to in Sec 80CCD. Compute Deductions under Sec 80CCD.

    Ans: Under sec 80CCD (1B)=50,000
    Under sec 80CCD (1)=130,000
    Under sec 80CCD (2)144,000
    Total deduction under sec 80CCD =200,000
    Iz dis correct???????

  7. Sir,my nps contribution is 45000. I have 170000 deduction under 80 c including this nps. Can I take 45000 employer contribution under 80ccd plus 5000 mine to get the tax benefit of extra 50000 by reducing 80c contribution to 165000? Or else how can I maximize my tax benefit sir?

    • You can just consider your contribution to NPS for tax saving. So you can take Rs 45,000 NPS u/s 80CCD(1B). Additionally you should invest Rs 5,000 in NPS for 80CCD(1B) and Rs 25,000 in any tax saving instrument u/s 80C

      • Thank you so much sir. I wanted one more clarification.my collegues 80c limit has been exhausted excluding nps share. Her nps share is also same as mine.that is 45000. Can she take 195000 tax exemption by showing her nps amount under 80ccd(1b)? Or which is the best way to get maximum tax benefit? Please reply sir

        • Yes she should take her contribution of NPS u/s 80CCD(1B). This would save Rs 1.95 lakhs from taxable income

  8. My employee contribution in NPS (Tier 1) is 76,000. To show tax calculation can I break it as CCD(1)= 26000 and CCD(1B)= 50,000 to get a tax exemption of total 200,000 (including 80C, CCD(1), CCD(1B))?

    N.B. I have no contribution in NPS Tier 2 and I am a taxpayer of 20% bracket.

  9. My employee contribution in NPS (Tier 1) is 76,000. To show tax calculation can I break it as CCD(1)= 26000 and CCD(1B)= 50,000 to get a tax exemption of total 200,000 (including 80C, CCD(1), CCD(1B))?

    N.B. I have no contribution in NPS Tier 2.

  10. Sir,
    I already have NPS account and my total deduction under 80-c 1,50000/- however I also deduct Rs.50,000/- in NPS Tier-2.But in Income Tax Return there is no any column that mention 80ccd 1(b) ,so how should I Get benefit of 80ccd1(b) in income tax Return.

  11. my salary more than 20 lalh for ay-2018-2019. Can i claim rs.2,00,000/- u/s 80CCD(2) in addition to Rsd.1,50,000/- and additional claim Rs.50,000/- voluntary contribution under nps . I am in nps

    • 80CCD(2) is strictly for employer contribution. If your employer does contribute to NPS then you claim tax benefit for the same.

  12. What will be the amount exempt under section 80ccb(2), is it separate from section 80c.if my employer is not added any amount in NPS then should I invest in 80ccb(2), please reply

    • 80CCD(2) is for NPS contribution by employer and is not part of 80C. In case your employer does not contribute you cannot claim this benefit

  13. Is this FY 2017-18, 80CCD(1B) applicable?

  14. My Name is P. Jothi.Under section 80cc I invessted Rs.150000, My NPS deduction Rs.52933. Am I allowed deduction up to Rs.250000(150000+50000under 80CCD1(B)+50000 under section 80ccd(2)

  15. 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?

    is the following is right way of claiming tax deduction

    80ccd(1) 50,000
    80ccd(2) 62,000
    80c 1,50,000

    • You can claim your contribution to NPS u/s 80CCD(1) (which together with 80C has limit of rs 1.5 lakhs) or 80CCD(1B). So it can be Rs 50,000 u/s 80CCD(1B) and rest Rs 18,000 u/s 80CCD(1).
      The employer contribution is u/s 80CCD(2). You should only claim this if this employer contribution amount is shown as income in your Form 16 as many employer may not show in Form 16 – which does not impact the tax calculation as its reflected as income and dedcuted u/s 80CCD(2).

  16. My 80C section is exhausted. If i Invest Rs.50000 in Section 80CCD1b how much tax exemption should i get?

    For eg.,my total taxable amout is 150000 what would be my taxable amout if i invest Rs. 50000.

Leave a Reply

Your email address will not be published. Required fields are marked *