In this guide
Section 80CCD(2) of the Income-tax Act, 1961 allows an employee to claim a deduction for an eligible contribution made by their employer to the employee’s account under a notified pension scheme, commonly an NPS Tier I account. The deduction is allowed when calculating the employee’s total income.
For AY 2026-27, the relevant financial year is FY 2025-26, from 1 April 2025 to 31 March 2026. The Income-tax Act, 1961 governs this assessment year. The Income-tax Act, 2025 applies to tax years beginning from 1 April 2026.
Section 80CCD(2) is available under both the old and new tax regimes, but the deduction limit depends on the employer category and tax regime. It applies to the employer’s eligible contribution, not the employee’s own NPS contribution.
How much can you claim?
The deduction is limited to the lower of the employer’s actual eligible contribution and the applicable percentage of salary.
| Employer category | Old tax regime | New tax regime |
|---|---|---|
| Central or State Government employer | Up to 14% of salary | Up to 14% of salary |
| Other employer, including private employers and PSUs | Up to 10% of salary | Up to 14% of salary |
For example, if a private-sector employer contributes less than 10% of an employee’s salary, the employee cannot claim a larger amount just because the limit is 10%. The deduction is based on the qualifying contribution actually made.
What counts as salary?
For this percentage limit, salary generally means basic salary and dearness allowance, if the terms of employment provide for it. Other allowances and perquisites are excluded. Do not use total cost to company (CTC) or gross salary without checking the applicable salary definition and payroll records.
Example
Suppose a private-sector employee has eligible salary of ₹10 lakh for FY 2025-26. The employer contributes ₹1.2 lakh to the employee’s NPS account.
- Under the old regime, 10% of salary is ₹1 lakh. The deduction may be limited to ₹1 lakh.
- Under the new regime, 14% of salary is ₹1.4 lakh. Since the actual contribution is ₹1.2 lakh, the deduction may be up to ₹1.2 lakh.
This example assumes the contribution and salary calculation meet the applicable conditions.
Who can claim the deduction?
Section 80CCD(2) applies to an individual employee whose employer makes an eligible contribution to the employee’s account under a notified pension scheme. The employee claims the deduction in their income tax return.
You generally cannot claim Section 80CCD(2) for:
- Your own NPS contribution.
- A contribution you make personally, even if it goes into your NPS account.
- Contributions to another investment that is not an eligible notified pension scheme.
- An amount that cannot be supported by payroll and account records.
A self-employed person without an employer contribution cannot claim this deduction. Personal NPS contributions may qualify under Sections 80CCD(1) or 80CCD(1B), depending on the conditions and tax regime.
Is Section 80CCD(2) available under both tax regimes?
Yes. The deduction is available under both the old and new regimes, subject to the applicable percentage limit.
Under the new regime, many common Chapter VI-A deductions—such as Section 80C, Section 80D and deductions for an individual’s own NPS contributions under Sections 80CCD(1) and 80CCD(1B)—are generally unavailable. Section 80CCD(2) is an exception.
This means that an employee may be able to claim an eligible employer NPS contribution under the new regime. It does not mean that all NPS contributions are deductible under that regime.
When comparing the two regimes, consider your full tax calculation, including salary, exemptions, eligible deductions and other income. The employer NPS deduction may affect the comparison, but it is only one part of it.
TaxClear’s Section 80C guide for AY 2026-27 explains how personal deductions differ from employer contributions. For the broader return process, see the salaried employee ITR guide for AY 2026-27.
How is Section 80CCD(2) different from Sections 80CCD(1) and 80CCD(1B)?
These provisions cover different types of contributions. The same contribution cannot be claimed more than once.
| Provision | Contribution covered | Key point |
|---|---|---|
| Section 80CCD(1) | Eligible contribution made by the individual | Subject to its own limits and, where applicable, the combined Section 80CCE ceiling |
| Section 80CCD(1B) | Eligible additional contribution made by the individual | Additional deduction of up to ₹50,000, generally available under the old regime |
| Section 80CCD(2) | Eligible contribution made by the employer | Separate from the combined ₹1.5 lakh limit under Sections 80C, 80CCC and 80CCD(1) |
Section 80CCD(2) is not part of the combined ₹1.5 lakh limit under Section 80CCE. However, its own percentage limit and eligibility conditions still apply.
Is the full employer contribution always tax-free?
Not necessarily. The Section 80CCD(2) deduction limit is separate from the rule that may tax certain employer contributions as a salary perquisite.
Employer contributions to a recognised provident fund, the NPS and an approved superannuation fund are considered together for the ₹7.5 lakh threshold. The aggregate amount above ₹7.5 lakh in a financial year may be taxable as a perquisite. Accretions relating to the taxable excess may also be taxable under the applicable provisions.
This is a separate salary-tax rule, not an additional Section 80CCD(2) deduction limit. Check your Form 16 and salary computation for:
- The employer contribution included in salary, if applicable.
- The eligible Section 80CCD(2) deduction.
- Employer contributions to the other specified funds, when applying the ₹7.5 lakh aggregate test.
How to claim Section 80CCD(2) in your AY 2026-27 ITR
The deduction is entered in the applicable deduction schedule of the ITR form. For AY 2026-27, the form and validation rules check the selected regime, employer category and applicable limits.
Before filing:
- Get your Form 16 and annual NPS contribution statement.
- Confirm that the employer made the contribution and it was credited to the eligible account during FY 2025-26.
- Check the employer category and tax regime selected in your return.
- Calculate the salary base for the percentage limit using the applicable salary definition.
- Claim no more than the lower of the eligible contribution or the applicable percentage limit.
- Reconcile the figure with Form 16, the NPS statement and payroll records.
- Review the deduction schedule and tax calculation before submitting and verifying the return.
The correct ITR form depends on your income and eligibility, not simply on whether you have an NPS account. An eligible individual may use ITR-1 if they meet its conditions. ITR-2 may apply if there is no business or professional income but ITR-1 cannot be used. ITR-3 may apply when the individual has business or professional income. Check the AY 2026-27 form instructions before filing.
Filing dates for AY 2026-27
As of 25 October 2026, the regular due date has passed for most non-audit individual returns. A belated return may generally be filed by 31 December 2026 or before completion of the assessment, whichever is earlier. A late-filing fee may apply. Specified audit cases have a separate extended deadline; confirm whether it applies to you.
| Return situation | AY 2026-27 date or treatment |
|---|---|
| Most non-audit individual returns | Regular deadline was 31 August 2026 |
| Belated return, where permitted | On or before 31 December 2026 or before assessment is completed, whichever is earlier |
| Specified audit cases | Separate extended deadline applies; check whether you are covered |
A late return does not change whether an employer contribution qualifies for the deduction. It may affect late fees, interest, loss carry-forward and other return consequences.
Records to keep
Investment proofs are generally retained rather than uploaded with the ITR. Keep them in case the Department or your employer asks you to substantiate the claim.
- Form 16 and the employer’s salary computation.
- NPS account or contribution statement showing employer credits.
- Payslips and payroll records for FY 2025-26.
- Documents showing the employer category, if it is not clear from Form 16.
- Your salary-base and Section 80CCD(2) limit calculation.
- A copy of your filed ITR and acknowledgement.
If Form 16 and the NPS statement show different amounts, reconcile them with payroll before claiming. Do not assume the larger figure is deductible until you have resolved the difference.
Common mistakes to avoid
- Applying a 14% limit to a private employer contribution under the old regime.
- Using gross salary or CTC instead of the applicable salary base.
- Claiming your own NPS contribution under Section 80CCD(2).
- Treating the ₹50,000 Section 80CCD(1B) deduction as available under the new regime.
- Including Section 80CCD(2) within the ₹1.5 lakh Section 80CCE limit.
- Ignoring the separate ₹7.5 lakh aggregate employer contribution rule.
- Claiming an amount that does not match Form 16, the NPS statement or payroll records.
- Assuming a self-employed person can claim Section 80CCD(2) without an employer contribution.
Frequently asked questions
Can I claim Section 80CCD(2) under the new tax regime?
Yes. The deduction is generally available under both regimes. Under the new regime, the applicable limit is up to 14% of salary, subject to the actual eligible contribution.
What is the limit for a private-sector employee under the old regime?
Generally, the deduction is limited to 10% of eligible salary or the employer’s qualifying contribution, whichever is lower.
Does the ₹1.5 lakh Section 80C limit apply to Section 80CCD(2)?
No. Section 80CCD(2) is separate from the combined limit under Sections 80C, 80CCC and 80CCD(1). It has its own percentage and eligibility rules.
Can I claim my personal NPS contribution under Section 80CCD(2)?
No. Section 80CCD(2) covers the employer’s eligible contribution. Your own contribution is governed by separate provisions and regime conditions.
Do I need to upload NPS proofs with my ITR?
Proofs are generally retained rather than uploaded. Keep your Form 16, NPS statement, payslips and calculation in case verification is requested.
Can a self-employed person claim Section 80CCD(2)?
Not without an employer contribution to the eligible account. A self-employed person should check the rules for personal NPS contributions instead.
