Section 80CCD (NPS)

Section 80CCD of the Income Tax Act provides tax deductions for contributions to the National Pension System (NPS). It has three sub-sections offering distinct benefits, the most attractive being the exclusive Rs.50,000 deduction under 80CCD(1B) over and above the Rs.1.5 lakh 80C ceiling.

Sub-section breakdown: (1) Employee/self-employed contribution - up to 10% of salary (employees) or 20% of gross income (self-employed), subject to overall 80C limit of Rs.1.5 lakh; (1B) Additional Rs.50,000 exclusive deduction for NPS Tier-I; (2) Employer contribution up to 10% of salary (14% for central government employees) - over and above all other limits, no cap on absolute rupees.

Example: A salaried investor earning Rs.20 lakh contributes Rs.1.5 lakh to ELSS+PPF (full 80C) and Rs.50,000 to NPS Tier-I (80CCD(1B)). Employer also contributes Rs.1.5 lakh to NPS (80CCD(2)). Total deductions: Rs.3.5 lakh - reducing taxable income to Rs.16.5 lakh.

When to use: Maximizing tax shelter beyond Rs.1.5 lakh 80C, leveraging employer's corporate-NPS facility (the 80CCD(2) benefit is unlimited and pure additionality), and building long-term retirement corpus with 60% tax-free withdrawal at age 60.

SEBI/PFRDA caveat: NPS Tier-I has lock-in until age 60. 80CCD benefits are available only under the OLD tax regime (with exceptions for 80CCD(2) which also works in the NEW regime from FY24). Confirm with your CA each financial year.

Related: NPS, PPF, EPF, ELSS.