The three NPS deductions
| Contribution | Old regime | New regime |
|---|---|---|
| Yours, within 80C (80CCD(1)) | Yes, inside the ₹1.5 lakh 80C limit | No |
| Yours, extra (80CCD(1B)) | Up to ₹50,000 more | No |
| Your employer's (80CCD(2)) | Up to 10% of basic + DA | Up to 14% of basic + DA |
The figures are for private-sector employees. Your employer's share is outside the ₹1.5 lakh 80C limit.
What it saves
- The extra ₹50,000 under 80CCD(1B) saves ₹15,600 a year in the 30% slab, with cess (old regime only).
- An employer contribution of ₹5,000 a month (₹60,000 a year) saves ₹18,720 in the 30% slab, in either regime, if it's within the percentage limit.
One limit to watch: ₹7.5 lakh
Your employer's contributions to EPF, NPS and superannuation together are tax-free up to ₹7.5 lakh a year. Above that, the extra is taxed as salary.
Tax when you withdraw
- At 60, non-government subscribers can take up to 80% of the corpus as a lump sum and must buy an annuity with at least 20% (PFRDA rules from December 2025).
- 60% of the corpus is tax-free. The Act hasn't yet been changed to cover the extra 20% now allowed, so treat it as taxable for now.
- The pension from the annuity is taxed as income each year.
- If the corpus is ₹8 lakh or less, you can take it all out.
Is NPS worth it just for tax?
In the new regime, asking your employer to route part of your CTC to NPS is one of the few ways left to cut tax. Remember that the money is locked until 60, and part of it must buy an annuity.
Government employees: UPS or NPS
Central government employees can choose the Unified Pension Scheme, which pays an assured 50% of average basic pay after 25 years of service. Those who chose UPS can make a one-time switch back to NPS. Our UPS vs NPS calculator compares the two.
Common questions
Can I claim NPS in the new tax regime?
Only your employer's contribution, up to 14% of basic + DA, under 80CCD(2). Your own contributions don't save tax in the new regime.
What is 80CCD(1B)?
An extra deduction of up to ₹50,000 for your own NPS contributions, on top of the ₹1.5 lakh 80C limit. Old regime only.
How much of NPS is tax-free at retirement?
60% of the corpus. Non-government subscribers can now take up to 80% as a lump sum, but the extra 20% isn't yet exempt. The pension is taxed as income.
Is there a limit on employer NPS contributions?
Yes. Employer contributions to EPF, NPS and superannuation together are tax-free up to ₹7.5 lakh a year. Above that, the extra is taxed.
Two ways to sort this
Do it yourself
- Ask HR whether you can move part of your CTC to employer NPS contributions.
- Check the employer share is within 14% (new regime) or 10% (old regime) of basic + DA.
- In the old regime, put up to ₹50,000 more in NPS Tier I for 80CCD(1B).
- Make sure Form 16 shows the 80CCD(2) deduction, and claim any 80CCD(1B) in your return.
Let an expert do it
We work out how much NPS saves you in each regime, and set up your claims.
The first chat is freeWork it out for yourself
- NPS: Your pension corpus and monthly pension.
- Atal Pension Yojana: Monthly contribution for the pension you want.
- UPS vs NPS: Unified Pension Scheme or NPS, for central government staff.
- NPS vs mutual funds: Which builds a bigger retirement corpus.
- Retirement: How much you need to retire, and how to get there.
- FIRE: When you could stop working.
See your NPS corpus, the tax-free lump sum and your pension.
Open the NPS calculatorSources
- Tax rules for salaried individuals, AY 2026-27, Income Tax Department
- National Pension System and Atal Pension Yojana, Pension Fund Regulatory and Development Authority
- Taxability of retirement benefits, Income Tax Department
This guide explains the rules in general. For your own situation, .