Income tax | Pension savings
Section 80CCD: NPS Tax Deductions for Employee, Self-Employed and Employer Contributions
A guide to the pension-scheme deductions under Section 80CCD of the Income-tax Act, 1961, their limits, tax-regime restrictions and withdrawal rules.
What is Section 80CCD?
Section 80CCD of the Income-tax Act, 1961 deals with deductions for qualifying contributions to a Central Government-notified pension scheme, principally the National Pension System (NPS). It distinguishes contributions by an individual from those made by an employer. An assessee is a person covered by the definition in Section 2(7); gross total income generally means income computed before Chapter VI-A deductions, as defined in Section 80B(5).
The original webpage reproduces an older version of Section 80CCD. Its employer-contribution percentage has since changed for specified categories. The original extract is preserved below as historical source material, not presented as the latest consolidated statutory text.
Legislative transition: The Income-tax Act, 2025 took effect on 1 April 2026. For tax years governed by that Act, consult its corresponding provisions and transition rules. The 1961 Act provisions below explain the law applicable to relevant earlier years; the old section number should not automatically be applied to a new tax year.
Section 80CCD deduction limits under the 1961 Act
| Provision | Who contributes? | Deduction and limits |
|---|---|---|
| 80CCD(1) | Employee or self-employed individual | Employee: up to 10% of qualifying salary. Self-employed individual: up to 20% of gross total income. Included in the combined Rs. 1,50,000 ceiling under Section 80CCE, together with Sections 80C and 80CCC. |
| 80CCD(1B) | Individual's own contribution | Additional deduction up to Rs. 50,000, separate from the Section 80CCE limit. The same contribution cannot be claimed twice. |
| 80CCD(2) | Employer's contribution | Separate deduction, outside the Section 80CCE ceiling. Under later amendments to the 1961 Act, generally up to 14% of qualifying salary for Central/State Government employees and 10% for other employees under the old regime; 14% for qualifying employer contributions under the Section 115BAC regime, subject to the applicable year and conditions. |
Salary for this purpose includes dearness allowance when the terms of employment so provide, but excludes other allowances and perquisites. Employer-contribution deduction is also subject to the separate rules for aggregate employer contributions to specified retirement funds and their tax treatment, including Section 17(2)(vii) where applicable.
These limits concern the 1961 Act for applicable assessment years and are not a substitute for verifying the corresponding 2025 Act rules.
Old tax regime and new tax regime
For years governed by the 1961 Act, deductions under Sections 80CCD(1) and 80CCD(1B) are generally available when the individual validly uses the old tax regime and satisfies all conditions. Under the concessional regime of Section 115BAC, these personal-contribution deductions are generally unavailable.
The deduction for eligible employer contributions under Section 80CCD(2) can remain available under Section 115BAC, subject to its applicable percentage and other conditions. Thus an employee should distinguish employer NPS contributions from contributions deducted from their own salary.
Tax treatment of NPS withdrawals and pension
Section 80CCD(3) addresses amounts received on closure or opting out of the notified pension scheme and pension received from a purchased annuity. However, this rule must be read with the applicable exemptions, including Section 10(12A) for qualifying lump-sum payments and Section 10(12B) for specified partial withdrawals, as applicable to the relevant year.
Under Section 80CCD(5), amounts applied to purchase an annuity in the same previous year are treated differently from amounts received in cash. Annuity pension receipts may be taxable when paid. A qualifying nominee receipt following the subscriber's death has a specific exception under the provision. The exact treatment depends on the payment, scheme rules and tax year.
No double deduction: Section 80CCD(4) prevents a second deduction under Section 80C for the same qualifying contribution already deducted under Section 80CCD(1) or (1B).
Illustrative deduction calculation
Suppose an employee under the old regime has qualifying salary of Rs. 10,00,000, personally contributes Rs. 1,00,000 to NPS and contributes a further Rs. 50,000 eligible under Section 80CCD(1B). The Section 80CCD(1) amount may fall within the shared Rs. 1,50,000 limit under Section 80CCE, while the separately eligible Rs. 50,000 can be claimed under Section 80CCD(1B), subject to all conditions and no duplication.
If the employer additionally contributes to the eligible NPS account, the Section 80CCD(2) deduction is computed separately by applying the appropriate statutory percentage to qualifying salary. The employee's tax regime and the employer category matter.
Documents to retain
- NPS account details and contribution transaction statement.
- Salary and employer contribution certificates, where relevant.
- Evidence of the tax regime selected and the relevant return acknowledgement.
- Withdrawal or annuity statements where any pension amount is received.
Section 80CCD: Original webpage statutory extract and amendment notes
The following historical statutory text and legislative notes are retained from the supplied webpage. Its text reflects an earlier amendment position and should be checked against the official legislation for the relevant year.
80CCD Income Tax Act - Deduction in respect of contribution to pension scheme of Central Government
Section 80ccd of Income Tax Act 1961 - Deduction in respect of contribution to pension scheme of Central Government
1(1) 2 Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or, being an individual employed by any other employer, 3 or any other assessee, being an individual has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited 4 as does not exceed,-
(a) in the case of an employee, ten per cent of his salary in the previous year; and
(b) in any other case, 5 twenty per cent. of his gross total income in the
previous year.
6 * * * * *
7 (1B) An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, whether or not any deductions is allowed under sub-section (1), of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees:
Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).
(2) Where, in the case of an assessee referred to in sub-section (1), the 8 Central Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the 8 Central Government or any other employer as does not exceed ten per cent of his salary in the previous year.
(3) Where any amount standing to the credit of the assessee in his account referred to in 9 sub-section (1) or sub-section (1B), in respect of which a deduction has been allowed 10 under those sub-sections or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,-
(a) on account of closure or his opting out of the pension scheme referred to in 9 sub-section (1) or sub-section (1B); or
(b) as pension received from the annuity plan purchased or taken on such closure or opting out, the whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.
11 Provided that the amount received by the nominee, on the death of the assessee, under the circumstances referred to in clause (a), shall not be deemed to be the income of the nominee.
12 (4) Where any amount paid or deposited by the assessee has been allowed as a deduction under 9 sub-section (1) or sub-section (1B),-
(a) no rebate with reference to such amount shall be allowed under section 88 for any assessment year ending before the 1st day of April, 2006;
(b) no deduction with reference to such amount shall be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.
13 (5) For the purposes of this section, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.
Explanation.-For the purposes of this section, "salary" includes dearness allowance, if the terms of employment so provide, but excludes all other allowances and perquisites.
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1. Ins. by Act 23 of 2004, s. 15 (w.e.f. 1-4-2004).
2. Subs. by Act 25 of 2014, s. 28, for "Where an assessee, being an individual
employed by the Central Government or any other employer on or after the 1st day
of January, 2004" (w.e.f. 1-4-2015).
3. Ins. by Act 33 of 2009, s. 30 (w.e.f. 1-4-2009).
4. Subs. by s. 30, ibid., for "as does not exceed ten per cent. of his salary in
the previous year" (w.e.f. 1-4-2009).
5. Subs. by Act 7 of 2017, s. 33 for "ten per cent." (w.e.f. 1-4-2018).
6. Sub-section (1A) omitted by Act 20 of 2015, s. 18 (w.e.f. 1-4-2016).
7. Ins. by s. 18, ibid. (w.e.f. 1-4-2016).
8. Subs. by Act 22 of 2007, s. 25, for "Central Government" (w.e.f. 1-4-2004).
9. Subs. by Act 20 of 2015, s. 18, for "sub-section (1)" (w.e.f. 1-4-2016).
10. Subs. by s. 18, ibid., for " under that sub-section" (w.e.f. 1-4-2016).
11. Ins. by Act 28 of 2016, s. 37 (w.e.f. 1-4-2017).
12. Subs. by Act 18 of 2005, s. 23, for sub-section (4) (w.e.f. 1-4-2006).
13. Ins. by Act 33 of 2009, s. 30 (w.e.f. 1-4-2009).
Official sources and further reading
- India Code: central legislation and amendments
- Income Tax Department: Acts, rules and guidance
- Income Tax e-Filing Portal
- India Budget: Finance Acts and explanatory documents
- NPS Trust: pension scheme information
Always use the legislation and notified limits applicable to the relevant assessment or tax year.
Frequently asked questions
Is the additional Rs. 50,000 under Section 80CCD(1B) part of the Rs. 1.5 lakh limit?
No. For applicable years under the 1961 Act, Section 80CCD(1B) is separate from the combined ceiling in Section 80CCE.
Can the employer's NPS contribution be claimed in the concessional tax regime?
An eligible deduction under Section 80CCD(2) can be available under Section 115BAC, subject to the applicable salary percentage and statutory conditions.
Can I claim Section 80C and Section 80CCD on the same payment?
No. A contribution already allowed under Section 80CCD(1) or (1B) cannot be deducted again under Section 80C.
General information only. Apply the statutory text and official guidance for the relevant tax year and individual circumstances.