Is employer NPS contribution tax-free in the new regime?

Yes. The deduction under Section 80CCD(2) for employer contributions to NPS is one of the few deductions available in both the old and new tax regimes.

What is the maximum limit for 80CCD(2) deduction?

For private sector employees, the deduction is limited to 10% of your Basic Salary + DA. For government employees, the limit is 14%.

How to Report Employer's NPS Contribution in ITR

Does your company contribute to your NPS? Learn how Section 80CCD(2) works, its tax benefits in both regimes, and how to report it in your ITR.

The Rare "Both Regimes" Deduction

When the government introduced the new tax regime, they removed almost all popular deductions like 80C (PPF, ELSS) and 80D (Health Insurance).

However, they left one major benefit untouched: Section 80CCD(2), which covers the employer's contribution to your National Pension System (NPS) tier-1 account.

If your company offers this benefit as part of your CTC, it is a powerful way to reduce your taxable income, regardless of which tax regime you choose.

How Section 80CCD(2) Works

Unlike Section 80C or 80CCD(1B) where you invest your own money, 80CCD(2) is for money your employer deposits directly into your PRAN (Permanent Retirement Account Number).

Here is the flow: 1. The employer adds the NPS contribution to your Gross Salary (it is treated as a perquisite). 2. You then claim a deduction for the exact same amount under Section 80CCD(2). 3. The net effect on your taxable income is zero.

The Limits You cannot route your entire salary into NPS to avoid tax. The deduction is capped at: - 10% of Basic Salary + DA for private sector employees. - 14% of Basic Salary + DA for Central and State Government employees.

If your employer contributes more than this limit, the excess amount is fully taxable.

The 80CCD(2) ceiling

This deduction is for what your employer pays into your NPS, not your own contribution.

Employee type	Deduction limit (of Basic + DA)
Private sector	10%
Central / State Government	14%

Section 80CCD(2) is one of the few deductions allowed in the new regime, capped at 10% of Basic + DA for private staff and 14% for government staff. Source: Income Tax Act Section 80CCD(2).

What you should do

Confirm the employer NPS contribution is added to gross salary in your Form 16
Claim the same amount under Section 80CCD(2) in the deductions schedule
Check the contribution stays within 10% (or 14%) of Basic + DA
Do not confuse this with 80CCD(1B), the old-regime-only Rs 50,000 voluntary top-up

Common mistake

Mixing up 80CCD(2) and 80CCD(1B). Only the employer's 80CCD(2) contribution survives in the new regime; your own 80CCD(1B) top-up works only under the old regime.

How to Report it in Your ITR

If your employer is making these contributions, they will handle the calculations and report them in your Form 16. - The contribution will be included in your Gross Salary in Part B. - The deduction will be listed under Chapter VI-A as "80CCD(2)".

When filing your ITR on the portal: - Ensure the amount is included in your gross salary. - Navigate to the Deductions schedule and enter the amount under Section 80CCD(2).

Note: Do not confuse this with 80CCD(1B), which is the extra ₹50,000 voluntary contribution. 80CCD(1B) is ONLY available in the old regime.

Automate the Process

If you are using LastMinute ITR, you don't need to worry about placing these numbers in the right boxes. When you upload your Form 16, our system automatically identifies the 80CCD(2) deduction and applies it to both the old and new regime calculations, showing you the most tax-efficient outcome.