Applicable to: Individuals (Salaried & Self-Employed)
This section provides tax benefits for contributions to:
- National Pension System (NPS)
- Atal Pension Yojana (APY)
- Other notified pension schemes
Key Subsections & Benefits
1. Section 80CCD(1) – Employee/Self-Employed Contribution
- Deduction Limit:
- Salaried Individuals:Up to 10% of Salary (Basic + DA)
- Self-Employed:Up to 20% of Gross Income
- Max Deduction:₹1.5 lakh (shared with Sec 80C & 80CCC)
2. Section 80CCD(1B) – Additional NPS Deduction
- Extra ₹50,000 deduction(exclusive of ₹1.5L limit under 80CCD(1)).
- Total possible deduction:₹2 lakh (₹1.5L + ₹50K)
3. Section 80CCD(2) – Employer Contribution
- Employer’s NPS contributionup to 10% of Salary (Basic + DA)
- No upper limit(not part of ₹1.5L/₹2L limits)
- Tax-free in hands of employee
Taxation on Withdrawal
| WITHDRAWAL TYPE | TAX TREATMENT |
| 60% Lump Sum at Retirement | Tax-free (since 2019) |
| 40% Annuity Purchase | Pension received is taxable |
| Premature Withdrawal (Before 60) | 20% tax-free, 80% taxable |
Comparison with Other Pension Options
| FEATURE | NPS (80CCD) | EPF | PPF |
| Tax Benefit | ₹2L (1.5L+50K) | ₹1.5L (80C) | ₹1.5L (80C) |
| Employer Contribution | Tax-free | Taxable if > ₹7.5L/yr | NA |
| Withdrawal Tax | 60% tax-free | Tax-free if >5 yrs | Tax-free |
| Equity Exposure | Up to 75% | Fixed Interest | Fixed Interest |
Who Should Invest?
✔ Salaried employees (to maximize ₹2L deduction + employer contribution)
✔ Self-employed (for ₹2L deduction + market-linked returns)
✔ Young investors (for long-term wealth creation with tax benefits)
Pro Tips
- Maximize ₹2L deductionby using both 80CCD(1) & 80CCD(1B)
- Choose Active NPSif you understand markets (higher returns potential)
- Combine with 80C(PPF/ELSS) for ₹3.5L total deduction
