80CCD Deduction Limit Under the New Tax Regime (FY 2025-26)

With the revised income tax regime gaining momentum from April 1, 2025, understanding which deductions still apply has become critical, especially for salaried and self-employed individuals investing in retirement plans. One of the most discussed sections is Section 80CCD, which governs tax deductions for contributions to the National Pension System (NPS). While the old regime offered multiple tax-saving opportunities across employee, employer, and voluntary contributions, the new regime narrows the scope significantly. The only component that survives the transition is the employer’s contribution, setting a clear boundary for those hoping to claim deductions on their personal NPS investments.

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Table of Contents

• What is the 80CCD Deduction Limit Under the New Tax Regime?

• Is Section 80CCD(1) Deduction Allowed in the New Tax Regime?

• What About the ₹50,000 Deduction Under Section 80CCD(1B)?

• Section 80CCD(2): Is Employer Contribution Deduction Available?

• Comparison: Section 80CCD Deduction Limits – New vs Old Tax Regime

• Changes Introduced by Finance Act 2024 on Employer Contributions

• Section 80CCD in New Tax Regime: Practical Examples for FY 2025-26

• Key Benefits of Employer NPS Contributions in the New Regime

• Is 80CCD(1) Still Useful in the Old Regime?

• Frequently Asked Questions (FAQs)

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What is the 80CCD Deduction Limit Under the New Tax Regime?

Under the new tax regime, only the deduction under Section 80CCD(2) is available, which covers the employer’s contribution to an employee’s NPS account—up to 14% of salary (basic + DA) for both government and private sector employees. Personal contributions under Section 80CCD(1), which earlier allowed deductions up to ₹1.5 lakh, and the additional ₹50,000 deduction under Section 80CCD(1B), are not allowed under the new regime. This makes employer contributions the only NPS-related tax benefit available to individuals opting for the new regime.

Is Section 80CCD(1) Deduction Allowed in the New Tax Regime?

Section 80CCD(1), which allows salaried and self-employed individuals to claim deductions on their personal contributions to NPS or Atal Pension Yojana, is not permitted under the new tax regime. This disallowance applies universally—whether the contribution is part of the mandatory salary structure or a voluntary deposit into the account.

Previously, this section allowed deductions up to ₹1.5 lakh (as part of the overall 80C cap). However, under the streamlined framework of the new regime, this benefit has been deliberately excluded to promote simplification and reduce dependency on investment-based deductions. Taxpayers opting for the new regime must account for this exclusion when planning their retirement-linked tax strategy.

What About the ₹50,000 Deduction Under Section 80CCD(1B)?

Section 80CCD(1B) provided an additional ₹50,000 deduction on top of the Section 80C cap, exclusively for contributions made to the NPS. Under the old regime, this served as a powerful tax-saving tool, especially for those looking to boost retirement savings while lowering taxable income.

However, this special provision has also been excluded from the new tax regime. From FY 2025-26 onwards, individuals opting for the new structure cannot claim this extra ₹50,000 deduction, regardless of how much they contribute to NPS voluntarily. This shift underscores the new regime’s philosophy: offer lower tax rates upfront without the complexity of multiple exemptions and deductions.

Section 80CCD(2): Is Employer Contribution Deduction Available?

Yes. Under the new tax regime effective from April 1, 2025, deductions under Section 80CCD(2) continue to be available. This provision applies exclusively to employer contributions made to an employee’s National Pension System (NPS) account.

Employees, whether from the private sector or government, can claim this benefit. The deduction is capped at 14% of the salary (basic + dearness allowance), aligning private sector limits with those of government employees. This adjustment ensures equitable treatment across employment categories and encourages employer-led retirement savings.

Unlike personal NPS contributions, which are disallowed under Sections 80CCD(1) and 80CCD(1B) in the new regime, employer contributions remain the only form of NPS deduction permitted, offering a structured and tax-efficient avenue for retirement planning within the simplified regime.

Comparison: Section 80CCD Deduction Limits – New vs Old Tax Regime

Contribution Type	Old Tax Regime	New Tax Regime (FY 2025-26)
Employee Contribution	Up to ₹1.5L (under 80C), within overall cap	Not Available
Additional Contribution (1B)	₹50,000 additional (over 80C cap)	Not Available
Employer Contribution (2)	Allowed up to 10% (private) / 14% (govt)	Allowed up to 14% for all employees

In the old regime, NPS contributions offered a comprehensive benefit across Sections 80CCD(1), 80CCD(1B), and 80CCD(2), allowing taxpayers to layer multiple deductions for higher savings. The new regime, however, has narrowed its scope. Only employer contributions under Section 80CCD(2) remain valid, making them the sole deduction channel linked to NPS.

This shift simplifies the deduction structure but also removes personalized contribution incentives unless driven by employers.

Changes Introduced by Finance Act 2024 on Employer Contributions

A key update under the Finance Act 2024 reshaped how employer contributions are treated in the new tax regime. Until FY 2024-25, private sector employees could claim deductions up to 10% of their salary under Section 80CCD(2), while central government employees were allowed 14%. The amendment introduced uniformity—raising the cap for private sector employees to 14%, matching their government counterparts.

This change took effect from April 1, 2025, and applies to all salaried individuals who opt for the new regime. The aim was twofold: increase voluntary retirement savings and reduce disparity in deduction limits across employment types.

As a result, private companies now have greater flexibility to offer tax-efficient retirement benefits, and employees in the new regime can potentially claim up to ₹1.4 lakh in deductions, provided their basic salary structure allows it.

Section 80CCD in New Tax Regime: Practical Examples for FY 2025-26

To understand how Section 80CCD(2) applies under the new tax regime, consider these scenarios:

Example 1: A private sector employee earns ₹10 lakh as basic salary plus dearness allowance.

• Employer contributes 14% to NPS = ₹1.4 lakh

• Deduction claimed under Section 80CCD(2): ₹1.4 lakh (fully allowed)

Example 2: A Central Government employee earns ₹15 lakh (Basic + DA).

• Employer contribution: ₹2.1 lakh

• Deductible under new regime: ₹2.1 lakh

• Employee's own ₹70,000 contribution: not deductible under new regime

These examples highlight the narrowed scope of deductions. Only employer contributions qualify under the new structure, while individual contributions under Sections 80CCD(1) and 80CCD(1B) are excluded regardless of the amount.

Key Benefits of Employer NPS Contributions in the New Regime

While personal deductions under NPS are unavailable, employer contributions continue to offer significant tax advantages:

• Higher Deduction Limit: Uplifted to 14% of salary (Basic + DA) for both government and private employees, creating parity across sectors.

  
  

• Unlimited Investment Possibility: Employees may invest beyond 14%, but only the capped amount qualifies for deduction.

  
  

• Simplified Compliance: No need to track self-contributions or additional limits, employer contributions are straightforward and fully deductible.

  
  

• Enhances Retirement Corpus: Employees benefit from long-term wealth accumulation via NPS without incurring a tax burden on employer contributions.

These benefits make employer-sponsored NPS a powerful component of tax planning within the new regime's simplified framework.

Is 80CCD(1) Still Useful in the Old Regime?

Yes, Section 80CCD(1) retains its relevance under the old tax regime.

Under this structure:

• Self-contributions to NPS or APY are eligible for deduction within the overall ₹1.5 lakh cap under Section 80C.

  
  

• The limit is capped at 10% of salary (for salaried) or 20% of gross total income (for self-employed).

When paired with Section 80CCD(1B)’s additional ₹50,000 benefit, individuals can claim up to ₹2 lakh in total NPS deductions under the old regime.

For high-income earners aiming to reduce taxable income, this layered deduction structure offers strong incentive to remain in the old regime, especially when retirement planning is a priority.

FAQs

Is Section 80CCD(1B) deduction available under the new tax regime?

No. The ₹50,000 deduction under Section 80CCD(1B), meant for voluntary NPS contributions, is not permitted under the new tax regime applicable from April 1, 2025.

Can self-employed individuals claim 80CCD deductions under the new system?

Only employer-related contributions under Section 80CCD(2) are allowed in the new regime. Since self-employed individuals do not receive employer contributions, they cannot claim any 80CCD deductions under the new tax system.

What is the limit for employer contributions in the new tax regime?

The new tax regime allows a deduction for employer NPS contributions up to 14% of salary (basic + dearness allowance) for all employees, whether in the public or private sector.

Does the new regime treat private and government employees equally?

Yes. The Finance Act 2024 harmonized the deduction cap under Section 80CCD(2), allowing both private and government employees to claim up to 14% of salary as deductible employer contributions.

How do I calculate 14% of salary for an employer NPS contribution?

Multiply your basic salary plus dearness allowance by 14%. For instance, if your basic + DA is ₹10,00,000, the employer’s contribution eligible for deduction would be ₹1,40,000.

Is the ₹50,000 additional NPS deduction available in the old regime?

Yes. Taxpayers opting for the old regime can still claim the ₹50,000 benefit under Section 80CCD(1B) in addition to the ₹1.5 lakh limit under Section 80C.

Can NPS subscribers still benefit under the new tax system?

Yes, but only through employer contributions under Section 80CCD(2). Subscriber contributions—voluntary or mandatory—do not qualify for deductions under the new regime.

Are NPS contributions mandatory to avail any 80CCD benefit?

Not necessarily. In the new regime, only employer contributions to NPS trigger 80CCD(2) benefits. If your employer doesn't contribute to NPS, there’s no 80CCD benefit available.

What documents are required to claim employer contribution deductions? 

Form 16 or salary slips showing the employer’s contribution to NPS, along with an account statement from the NPS portal, are sufficient for claiming the 80CCD(2) deduction.

Does opting for the new regime mean losing all NPS-related deductions?

Not entirely. While Sections 80CCD(1) and 80CCD(1B) are disallowed, employer contributions under Section 80CCD(2) remain eligible, offering a tax-saving route for salaried individuals.

How is 80CCD different from 80C in the new regime?

Section 80C is fully disallowed under the new tax regime, along with most sub-sections of 80CCD. However, Section 80CCD(2), employer’s contribution to NPS, remains one of the few permissible deductions.

Which regime is better for maximizing retirement savings?

For those with significant employer contributions to NPS, the new regime offers a streamlined way to save taxes. However, if personal contributions are higher, the old regime could yield greater deductions and overall tax savings.