Understanding Section 80CCD: Tax Benefits on NPS under Old vs New Regime

Investing in your future doesn’t just secure retirement—it can also lower your tax bill as well. One of the best tools for this is the National Pension Scheme (NPS), which provides tax deductions under Section 80CCD of the Income Tax Act.

In this article, we will break down the three components of Section 80CCD—80CCD(1), 80CCD(1B), and 80CCD(2) and explain how they work under both the Old and New Tax Regimes

Background – When was Section 80CCD introduced?

• Section 80CCD was introduced in 2004, when the National Pension Scheme (NPS) was launched for Central Government employees.
• In 2009, NPS was opened to all Indian citizens (including self-employed).
• Over time, subsections were added—like 80CCD(1B) in 2015—to encourage voluntary retirement savings.

Who Runs the NPS Scheme?

NPS is a government-backed pension scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA).

• Points of Presence (PoPs): Banks (like SBI, ICICI, HDFC, Axis, etc.), post offices, and financial institutions act as service providers for account opening and servicing.
• Central Recordkeeping Agencies (CRAs): Maintain investor records and transactions (e.g., NSDL, KFintech).
• Pension Fund Managers (PFMs): Licensed entities that actually manage the investments (equity, government securities, corporate bonds, etc.).

So while you open or manage NPS through banks, post offices, or online NPS portal, the entire scheme is centrally regulated by PFRDA.

What is Section 80CCD?

Section 80CCD gives tax deductions for contributions made to NPS or Atal Pension Yojana (APY). It has three parts:

• 80CCD(1): Employee/self-employed contribution
• 80CCD(1B): Additional voluntary contribution
• 80CCD(2): Employer’s contribution

(A) Section 80CCD(1) – Employee / Self Contribution

Covers contributions made by the taxpayer.

• Salaried employees: Up to 10% of salary (Basic + DA)
• Self-employed individuals: Up to 20% of gross total income
• Limit: Falls within the overall ₹1.5 lakh 80C ceiling

Allowed in Old Regime – Yes
Allowed in New Regime – No

(B) Section 80CCD(1B) – Additional Voluntary Contribution

This is an extra deduction, encouraging higher retirement savings.

• Maximum deduction: ₹50,000
• Eligibility: Both salaried & self-employed
• Note: Only for voluntary contributions over and above 80CCD(1)

Allowed in Old Regime – Yes
Allowed in New Regime – No

(C) Section 80CCD(2) – Employer Contribution

Applies only to salaried employees where the employer contributes to NPS.

• Private sector: Up to 10% of salary (Basic + DA)
• Central Government: Up to 14% of salary
• Limit: No upper monetary ceiling; separate from 80C
• Taxable on withdrawal (but tax-deferred till then)

Allowed in Old Regime – Yes
Allowed in New Regime – Yes

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