Section 80CCD(1): NPS Deduction for Employees and Self-Employed

Last updated: Oct 2026

Section 80CCD(1) covers the money you put into your own National Pension System (NPS) account. The deduction is capped twice: by a share of your pay, and by the Rs. 1.5 lakh limit that Section 80C already uses.

• Employee limit: 10% of salary, meaning basic pay plus dearness allowance
• Self-employed limit: 20% of gross total income
• Overall limit: Rs. 1.5 lakh across Sections 80C, 80CCC and 80CCD(1)
• Regime: old regime only

• Example: Rs. 70,000 paid, Rs. 60,000 allowed, and only Rs. 48,000 adds to a Rs. 1.02 lakh Section 80C basket

  
  

Check your Section 80C total before you add NPS. If the basket is already full, the extra contribution earns nothing more under this section, and you should look at Section 80CCD(1B).

Section 80CCD(1) is the provision that allows a deduction for your own contribution to the National Pension System (NPS) or the Atal Pension Yojana. The employer's contribution falls under Section 80CCD(2), and the extra Rs. 50,000 falls under Section 80CCD(1B).

Under the Income Tax Act, 2025, which applies from Tax Year 2026-27, the NPS provisions sit in Section 124. Your own contribution counts within the Section 123 ceiling. The deduction is allowed only if you choose the old tax regime.

Two limits apply together: a share of your pay or income, and the Rs. 1.5 lakh ceiling.

Dearness allowance is the cost-of-living component of pay. House rent allowance and special allowances are not part of the base.

The ceiling is shared, so NPS adds to your deduction only until the total reaches Rs. 1.5 lakh. Items such as provident fund, life insurance premiums and the principal of a home loan use the same room.

Formula used: Deduction under Section 80CCD(1) = smaller of (your contribution, 10% of basic pay plus dearness allowance). Total deduction = smaller of (Section 80C items + that amount, Rs. 1,50,000).

The Rs. 12,000 of NPS contribution that falls above the ceiling earns no deduction here.

No. The new regime does not allow a deduction for your own NPS contribution. It allows only the employer's contribution under Section 80CCD(2), up to 14% of basic pay plus dearness allowance since the Finance (No. 2) Act, 2024.

Trade-off: the own-contribution deduction needs the old regime, which costs more tax for a salaried person with modest deductions. Compare both regimes with your real figures. The guide to how to save tax on a salary above Rs. 12 lakh shows the employer NPS route.

Five steps cover the claim, and the proof comes first.

1. Download your NPS contribution statement for the financial year.
2. Add your contributions to your Section 80C items, and check the Rs. 1.5 lakh total.
3. Give the proof to your employer before its declaration deadline, so tax deducted at source is lower.
4. Check that Form 16 shows the deduction.

5. Claim the same figure in your return under the old regime.

   
   

NPS Tier I is a retirement account, so the money stays locked in. Check the current withdrawal rules of the Pension Fund Regulatory and Development Authority (PFRDA) before you commit.

Consider Rohan, a 34-year-old engineer in Bengaluru with a salary of Rs. 12 lakh a year, a household income of Rs. 1.4 lakh a month and a CIBIL Score of 756. His basic pay plus dearness allowance is Rs. 6 lakh, and he is in the old regime.

Rohan saves Rs. 14,976 on a Rs. 70,000 contribution. He chooses the next step after checking whether the Rs. 12,000 above the ceiling suits his retirement plan.

Bajaj Finance assesses repayment from net monthly income. The principal you repay on a home loan also uses the Section 80C ceiling, so a full ceiling leaves no room for NPS in the old regime.

Approval timelines can extend where income documents need cross-checking, and minimum income thresholds can differ by city. Check your home loan eligibility.