Section 80C and NPS-Linked Deductions

Deduction limits and regime rules can change. This article is for general information and does not constitute tax advice.

Section 80C: The ₹1,50,000 Umbrella

New Section 123 (old Section 80C) provides a combined deduction of up to ₹1,50,000 a year across a wide list of eligible investments and payments: EPF and voluntary PF contributions, PPF, ELSS tax-saver mutual funds, life insurance premiums (for the policyholder, spouse, or children), 5-year tax-saving bank fixed deposits, NSC, Sukanya Samriddhi Yojana, principal repayment on a home loan, and children’s tuition fees, capped at two children. The ₹1,50,000 is a single combined ceiling across all of these together, not per category; contributing more than that in total simply doesn’t generate any further deduction, with no carry-forward to a later year. This deduction, along with essentially everything else under Chapter VI-A, is available only under the old tax regime.

NPS: Three Deductions, Not One

NPS touches three separate provisions, and they don’t all survive the shift to the new regime the same way. 80CCD(1), the employee’s own contribution, sits inside the same ₹1,50,000 80C ceiling above, not on top of it. 80CCD(1B) adds a further ₹50,000 deduction specifically for the employee’s own NPS contribution, over and above the 80C ceiling, using the same Tier-I account. Like 80C itself, this is available only under the old regime. 80CCD(2), new Section 124, covers the employer’s contribution to the employee’s NPS account, and is the one NPS-related deduction, and one of the very few deductions of any kind, that survives fully into the new regime.

Regime	Government employees	Private sector employees
Old regime	14% of salary	10% of salary
New regime	14% of salary	14% of salary

“Salary” here means Basic pay plus Dearness Allowance. The private-sector enhancement to 14% specifically requires being on the new regime; staying on the old regime keeps the private-sector cap at 10%. Because this is an employer contribution routed through CTC rather than a personal investment choice, it isn’t removed under the new regime the way 80C and 80CCD(1B) are.

One ceiling sits above all of this: combined employer contributions to NPS, EPF, and any superannuation fund together cannot exceed ₹7,50,000 in a year without the excess being taxed as a perquisite in the employee’s hands.

What Happens on Exit

Up to 60% of the accumulated NPS corpus can be withdrawn as a tax-free lump sum on maturity, under Section 10(12A). The remaining 40% has to go toward buying an annuity; that purchase itself isn’t taxed, but the annuity income received afterward is taxable at slab rate as it’s paid out, year after year.