Section 80CCD(2) Employer Contribution to NPS, of the Income Tax Act, is the ONLY taxsaving investment allowed under the new income tax regime and the old tax regime.

Who can take benefit of this section?

Well, this benefit is only available for salaried individuals whose employer contributes to their NPS account. Let’s understand the process behind it

You must have heard about Flexi Benefit Pay offered by the companies. Well, Flexi Benefit Pay (FBP) is a component of the CTC, if opted can be claimed as nontaxable income and Corporate NPS is a part of such benefit.

You can opt in for Corporate National Pension Scheme (NPS), your employer will contribute an amount equivalent to 10 % of your Basic pay to your NPS account and you can enjoy the tax benefit on under section 80 CCD (2).

The same will be deducted from your salary on monthly basis and deposited to your PRAN account managed by NSDL.

How much can you claim under section 80CCD(2)?

You can claim a deduction for the employer's contribution made to your NPS account. In case, if you’re government employee both central and state you can claim a maximum deduction of 14% of your salary (basic + DA).

If you’re working for any other employer, the maximum deduction that can be claimed is 10% of your salary (basic + DA).

Let’s take an example to make it more clear for you

Here is an example to know how much deduction can be claimed by an individual working in the private sector. Suppose you’re a salaried individual working for a private sector company & your annual basic salary is Rs 9 lakh and your employer contributes Rs 90,000 to your TierI NPS account. Then you can claim a deduction of 10% of your basic salary, i.e., Rs 90,000 (10% of Rs 9 lakh) under Section 80CCD (2).

So, what if your employer contributes a little extra to your NPS account?

If your employer contributes more than 10% to your NPS account in a year, those excess contributions will be taxable as ‘Perquisite’ in your hands.

What is the maximum benefit that you can claim from employer’s contribution?

Well, with effect from FY 202021, the total maximum benefit that you can claim from your employer's contribution to NPS, Provident Fund (PF) and superannuation funds is Rs 7.5 lakh in a financial year. Any excess amount will be taxable for you. Also, interest, dividend etc. earned on the excess contribution will be added to you taxable.

Is this benefit a part of Section 80C?

If you are a salaried individual and your employer contributes to your NPS account, you can claim deduction under Section 80CCD(2) over and above the deductions under Section 80C & 80CCD(1B).

Time stamps

0:00 What is Section 80CCD(2)? Introduction
0:23 Who can take benefit of Section 80CCD(2)?
1:14 What is the maximum benefit you can claim under section 80CCD(2)?
1:58 What if your employer contributes a little extra to your NPS account?
2:11 What is the maximum benefit that you can claim from employer’s contribution?
2:36 Is this benefit a part of Section 80C?


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