NPS Tax Benefits Explained: 80CCD(1), 80CCD(1B) and 80CCD(2)

The National Pension System gives Indian taxpayers three separate deductions — but most salaried people only use one. Stacked correctly, NPS can deduct ₹2 lakh on top of your ₹1.5 lakh 80C, plus an unlimited employer contribution deduction.

The Three Buckets

• 80CCD(1): Employee's own contribution. Up to 10% of salary (basic + DA), capped inside the overall ₹1.5 lakh 80C limit.
• 80CCD(1B): Extra ₹50,000 deduction on top of 80C — available only via NPS Tier 1. This is the bucket most people miss.
• 80CCD(2): Employer's NPS contribution. Deductible up to 10% of salary (14% for central govt employees). Does NOT count toward your ₹1.5 lakh — separate ceiling.

Worked Example: ₹15 Lakh CTC

Basic = ₹6 lakh. 80CCD(1) deduction up to ₹60,000 (10% of basic). Add ₹50,000 to NPS Tier 1 → ₹50,000 under 80CCD(1B). Ask employer to route 10% of basic (₹60,000) to NPS → ₹60,000 under 80CCD(2). Total NPS-related deduction: ₹1.7 lakh, of which ₹1.1 lakh is over and above 80C.

See your projected NPS corpus: NPS Calculator → https://calculatordesk.in/nps-calculator

Does NPS Work in the New Regime?

Only 80CCD(2) — the employer contribution — is allowed in the new tax regime. 80CCD(1) and 80CCD(1B) are not. So in the new regime, NPS is still useful but only via the employer-routed contribution.