# NPS Tax Benefits Explained — 80CCD(1B) and Beyond

*By Utkarsh Agrawal · 8 min read*

NPS is the only product in India that gives you a tax deduction outside the ₹1.5L Section 80C limit.

## The three sections to know

### 80CCD(1) — Employee contribution
Up to 10% of salary (basic+DA) for salaried, or 20% of gross for self-employed. **Sits within the ₹1.5L 80C ceiling.**

### 80CCD(1B) — Exclusive ₹50,000
Additional ₹50,000 deduction, exclusive to NPS, over and above 80C. *Available only in the old regime.* At 30% + 4% cess = **₹15,600 annual tax saving.**

### 80CCD(2) — Employer contribution
- **Old regime:** up to 10% of basic+DA, no monetary cap
- **New regime:** up to **14% of basic+DA** — one of the few deductions still allowed

## New regime angle most people miss
In the new regime, 80C and 80CCD(1B) are gone — but **80CCD(2) survives**. For high earners, this is one of the only meaningful tax shelters left.

## Tax treatment at maturity
- 60% lump sum withdrawal at age 60 → **tax-free**
- 40% mandatory annuity → pension taxed as income
- Partial withdrawals before 60 (up to 25% of own contribution for specified purposes) → tax-free

## Worked example
Salaried, ₹20L CTC, basic ₹8L, old regime:
- Self NPS ₹50K → **₹15,600 saved (80CCD(1B))**
- Employer NPS ₹80K → **₹24,960 saved (80CCD(2))**
- **Total: ₹40,560 saved annually + ₹1.3L into retirement**

## Who NPS suits
Salaried wanting the extra deduction · self-employed without other pension · investors comfortable locking till 60.

*Tax benefits per current law; verify before acting.*