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Employer NPS contribution deduction
Employer's contribution to your NPS Tier-1 account is deductible — up to 10% of your basic + DA (14% for central government employees). Available in both old and new regimes — making it one of the most powerful new-regime deductions.
Maximum deduction
10% of salary (14% for govt employees) — no monetary cap
Who can claim
Salaried employees whose employer contributes to NPS Tier-1 on their behalf (corporate NPS).
How it works
Section 80CCD(2) deduction equals the employer's contribution to your NPS account, capped at 10% of (Basic + DA) — 14% for central government employees from FY 2022-23 onwards (extended to all govt employees from FY 2024-25). Crucially, this deduction is allowed under both the old and new tax regimes — making it the only major Chapter VI-A deduction for new-regime taxpayers. Employer's NPS contribution is over and above the ₹2L combined cap of 80C + 80CCD(1B).
Eligible instruments
Employer NPS Tier-1 contribution (corporate NPS scheme)
PSU / public bank NPS contribution
Government employer NPS — 14% of salary
Documents you'll need
Form 16 — should reflect employer NPS contribution as a separate line under "Deductions allowed under section 16"
Salary slip showing NPS-employer line
NPS PRAN account statement
Worked example
Salary: Basic ₹60,000/month + DA ₹15,000 = ₹75,000. Employer NPS contribution: 10% = ₹7,500/month = ₹90,000/year.
Gross salary includes ₹90,000 employer NPS. 80CCD(2) deduction: ₹90,000 (10% of ₹9,00,000 Basic+DA). Net taxable salary unaffected by employer NPS.
In 30% slab: ₹90,000 × 30% = ₹27,000 + cess = ~₹28,080 saved — and works in BOTH regimes.
Common mistakes to avoid
Employer doesn't add NPS contribution to gross salary first — both addition (income) and deduction must happen for the section to work
Confusing employer's contribution (80CCD(2)) with your own contribution (80CCD(1) / (1B))
Assuming deduction without an actual employer contribution — only what's actually paid by employer qualifies
FAQ
My employer doesn't offer corporate NPS — can I still claim?
No, 80CCD(2) requires actual employer contribution. You can request your HR to set up corporate NPS (zero employer cost — they just contribute a portion of CTC instead of giving it as cash).
Is the 10% on Basic only or Basic + DA?
Basic + DA (Dearness Allowance), where DA forms part of retirement benefits. Other allowances (HRA, special allowance) don't count.
Can my employer contribute more than 10% — is the excess taxable?
Excess over 10% (or 14% for govt) becomes taxable as part of your salary income. Most employers stick to the cap.
Related sections
Need help claiming this?
Our chartered accountants will plan and file it for you.