Tax Benefits under NPS

A. Old Tax Regime:

1. Section 80CCD

(1) Where an assessee, being an individual employed by the Central Government on or after the 1st day of January, 2004 or, being an individual employed by any other employer, or any other assessee, being an individual has in the previous year paid or deposited any amount in his account under a pension scheme notified or as may be notified by the Central Government, he shall, in accordance with, and subject to, the provisions of this section, be allowed a deduction in the computation of his total income, of the whole of the amount so paid or deposited as does not exceed,—

1. in the case of an employee, ten percent of his salary in the previous year; and
2. in any other case, twenty percent of his gross total income in the previous year.

(1A) Omitted by the Finance Act, 2015, w.e.f. 1-4-2016.

(1B) An assessee referred to in sub-section (1), shall be allowed a deduction in computation of his total income, whether or not any deduction is allowed under sub-section (1), of the whole of the amount paid or deposited in the previous year in his account under a pension scheme notified or as may be notified by the Central Government, which shall not exceed fifty thousand rupees.

Provided that no deduction under this sub-section shall be allowed in respect of the amount on which a deduction has been claimed and allowed under sub-section (1).

Following second proviso shall be inserted after the proviso to sub-section (1B) of section 80CCD by the Finance Act, 2025, w.e.f. 1-4-2026:

Provided further that the deduction under this sub-section shall also be allowed, where any payment or deposit is made to the account of a minor under the pension scheme referred to in the said sub-section, by the assessee, being the parent or guardian of such minor, subject to the condition that the aggregate amount of deduction under this sub-section shall not exceed fifty thousand rupees.

(2) Where, in the case of an assessee referred to in sub-section (1), the Central Government or the State Government or any other employer makes any contribution to his account referred to in that sub-section, the assessee shall be allowed a deduction in the computation of his total income, of the whole of the amount contributed by the Central Government or the State Government or any other employer as does not exceed—

1. fourteen per cent, where such contribution is made by the Central Government or the State Government; and
2. ten per cent, where such contribution is made by any other employer, of his salary in the previous year.

Provided that where the total income of the assessee is chargeable to tax under sub-section (1A) of section 115BAC, the provisions of sub-section (2) shall have effect as if for the words “ten per cent” referred to in clause (b), the words “fourteen per cent” had been substituted.

(3) Where any amount standing to the credit of the assessee [in his account] referred to in sub-section (1) or sub-section (1B), in respect of which a deduction has been allowed under those sub-sections or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year,—

(a)	on account of closure or his opting out of the pension scheme referred to in sub-section (1) or sub-section (1B); or
(b)	as pension received from the annuity plan purchased or taken on such closure or opting out,

The whole of the amount referred to in clause (a) or clause (b) shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amount is received, and shall accordingly be charged to tax as income of that previous year.

Provided that the amount received by the nominee, on the death of the assessee, under the circumstances referred to in clause (a), shall not be deemed to be the income of the nominee.

Following second proviso shall be inserted after the proviso to sub-section (3) of section 80CCD by the Finance Act, 2025, w.e.f. 1-4-2026:

Provided further that the amount received by a person, being the parent or guardian or nominee of a minor, on account of closure of the pension scheme referred to in sub-section (1B) due to the death of the minor, shall not be deemed to be the income of such person.

(3A) Where any amount standing to the credit of the assessee, being a subscriber to the Unified Pension Scheme, in his account referred to in sub-section (1) or sub-section (1B), in respect of which a deduction has been allowed under those sub-sections or sub-section (2), together with the amount accrued thereon, if any, is received by the assessee or his nominee, in whole or in part, in any previous year on account of his superannuation or voluntary retirement or retirement under clause (i) of rule 56 of the Fundamental Rules (which is not treated as penalty under the Central Civil Services (Classification, Control and Appeal) Rules, 1965), as may be applicable, the whole of the amount shall be deemed to be the income of the assessee or his nominee, as the case may be, in the previous year in which such amounts received, and shall accordingly be charged to tax as income of that previous year.

(4) Where any amount paid or deposited by the assessee [in his account or the account of a minor] has been allowed as a deduction under sub-section (1) or sub-section (1B)—

(a)	Omitted w.e.f. 01.04.2023.
(b)	No deduction with reference to such amount shall be allowed under section 80C for any assessment year beginning on or after the 1st day of April, 2006.

(5) For the purposes of this section, the assessee shall be deemed not to have received any amount in the previous year if such amount is used for purchasing an annuity plan in the same previous year.

(6) For the purposes of sub-section (3A), the assessee shall be deemed not to have received any amount in the previous year if such amount is transferred to pool corpus from individual corpus on account of his superannuation or voluntary retirement or retirement under clause (i) of rule 56 of the Fundamental Rules, 1965 (which is not treated as penalty under the Central Civil Services (Classification, Control and Appeal) Rules, 1965), as may be applicable.

[Explanation].—For the purposes of this section,—

1. "pool corpus" and "individual corpus" shall have the same meanings as assigned to them in notification number F.No.1/3/2024-PR, dated the 24th January, 2025, of the Department of Financial Services;
2. "salary" includes dearness allowance if the terms of employment so provide, but excludes all other allowances and perquisites.

2. Section 80CCE

The aggregate amount of deduction under section 80C, section 80CCC and sub-section (1) of section 80CCD shall not, in any case, exceed one lakh fifty thousand rupees.

3. Section 17(2)(vii)

The following shall be regarded as perquisites—

(vii) the amount or the aggregate of amounts of any contribution made to the account of the assessee by the employer—

• (a) in a recognized provident fund;
• (b) in the scheme referred to in sub-section (1) of section 80CCD; and
• (c) in an approved superannuation fund, to the extent it exceeds seven lakh and fifty thousand rupees in the previous year.

B. New Tax Regime

1. Section 115BAC

(2) For the purposes of sub-section (1A), the total income of the person referred to therein shall be computed—

without any exemption or deduction under the provisions of clause (5) or clause (13A) or prescribed under clause (14) (other than those as may be prescribed for this purpose) or clause (17) or clause (32), of section 10 or section 10AA or clause (ii) or clause (iii) of section 16 or clause (b) of section 24 in respect of the property referred to in sub-section (2) of section 23 or clause (iia) of sub-section (1) of section 32 or section 32AD or section 33AB or section 33ABA or sub-clause (iia) or sub-clause (iii) or sub-clause (iiia) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section 35CCC or under any of the provisions of Chapter VI-A other than the provisions of sub-section (2) of section 80CCD or sub-section (2) of section 80CCH or section 80JJAA;

C. Incomes not included while computing total income

Section 10.

In computing the total income of a previous year of any person, any income falling within any of the following clauses shall not be included—

12A

Any payment from the National Pension System Trust to an assessee on closure of his account or on his opting out of the pension scheme referred to in section 80CCD, to the extent it does not exceed sixty per cent of the total amount payable to him at the time of such closure or his opting out of the scheme;

12AA

Any payment from the National Pension System Trust to an assessee, who is a subscriber to the Unified Pension Scheme, to the extent that it does not exceed sixty per cent of the individual corpus, as specified in notification number F. X-1/3/2024-PR, dated the 24th January, 2025 of the Department of Financial Services, made at the time of his superannuation or voluntary retirement or retirement under clause (j) of rule 56 of the Fundamental Rules [which is not treated as penalty under the Central Civil Services (Classification, Control and Appeal) Rules, 1965];

12AB

Any sum received as lump sum amount as per clause (vi) of paragraph 2 of the notification number F. X-1/3/2024-PR, dated the 24th January, 2025 of the Department of Financial Services, by an assessee being a subscriber to the Unified Pension Scheme;

12B

Any payment from the National Pension System Trust to an employer under the pension scheme referred to in section 80CCD, on partial withdrawal made out of his account in accordance with the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder, to the extent it does not exceed twenty-five per cent of the amount of contributions made by him.

12BA

any payment from the National Pension System Trust to an assessee, being the parent or guardian of a minor, under the pension scheme referred to in section 80CCD, on partial withdrawal made out of the account of the minor, as per the terms and conditions, specified under the Pension Fund Regulatory and Development Authority Act, 2013 (23 of 2013) and the regulations made thereunder, to the extent it does not exceed twenty-five per cent of the amount of contributions made by him;

13

any payment from an approved superannuation fund made:

(i) by way of transfer to the account of the employee under a pension scheme referred to in section 80CCD and notified by the Central Government;

Deduction of contribution under different tax regiment while computing total income:

Section	Old Tax Regime			New Tax Regime
	Eligibility	Nature of Contribution	Deduction	Deduction
80CCD(1)	(i) Central Government employee (Employed after 01.01.2004)	(i) & (ii) Employee contribution	(i) & (ii) ten percent of his salary	Not Allowed
	(ii) Other employees
	(iii) Individual	(iii) Individual contribution	(iii) twenty per cent of his gross total income
	Section 80CCE - Aggregate deduction shall not exceed ₹1,50,000.
80CCD(1B)	Assessee referred under 80CCD(1)	Contribution by assessee	Amount paid upto ₹50,000	Not Allowed
Separate deduction in addition to deduction under section 80CCD(1).
80CCD(2)	Assessee referred under 80CCD(1)	Contribution by Employer	(i) Central or State Government employee – Amount paid upto 14%	(i) & (ii) Amount paid upto 14%
			(ii) Other employees – Amount paid upto 10%

Section 17(2)(vii) - Amount paid upto ₹7,50,000.

This HTML reproduces the table content shown in the image and groups relevant sections and limits (₹50,000, ₹1,50,000, ₹7,50,000) as separate notes. For precise legal or tax advice, consult the Finance Act / Income-tax Act and a tax professional.

Income / Exemption of Amount received (closure, withdrawal, pension, transfer) from Pension scheme

*This HTML representation summarizes tax treatment under the Income-tax Act for pension-related receipts such as NPS withdrawals, annuity pension, and transfers. For actual tax computation, always refer to the latest Finance Act and professional advice.*