Employer NPS Contribution in the New Tax Regime
Your employer's NPS contribution is deductible up to 14% of basic plus DA in the new regime under section 124, the old 80CCD(2). How it works, the ₹7.5 lakh cap and the tax saved.
Updated 27 September 2026 · 3 minute read
The employer's contribution to your NPS account is one of the few deductions the new tax regime still allows. Up to 14% of your basic pay plus DA can come off your taxable salary. It used to be section 80CCD(2); under the Income-tax Act, 2025 it is part of section 124. In the old regime the limit is 10% for private-sector employees and 14% for government employees.
It is worth asking your employer about, because it is one of the only ways left to cut tax in the new regime without changing regimes.
How it works
Your employer pays a share of your CTC into your NPS Tier 1 account instead of paying it to you as salary. That amount is first included in your salary and then deducted in full, up to the limit, so you pay no tax on it. You do not need to invest anything yourself.
What does not work in the new regime is your own contribution. The deduction for NPS you pay into yourself, including the extra ₹50,000 that used to be 80CCD(1B), is available only in the old regime.
The limits
| New regime | Old regime | |
|---|---|---|
| Private-sector employee | Up to 14% of basic plus DA | Up to 10% of basic plus DA |
| Central or state government employee | Up to 14% | Up to 14% |
| Your own NPS contribution | No deduction | Deductible, including the extra ₹50,000 |
There is also an overall ceiling. When your employer's contributions to PF, NPS and any superannuation fund together exceed ₹7.5 lakh in a year, the excess, and the returns earned on it, is taxed as a perquisite. Most people are well below it, but it matters at high salaries where PF is taken on full basic.
How much tax it saves
For tax year 2026-27, in the new regime, using the income tax calculator:
| Gross salary | Basic plus DA | Employer NPS at 14% | Tax without it | Tax saved |
|---|---|---|---|---|
| ₹18 lakh | ₹7.2 lakh | ₹1,00,800 | ₹1,50,800 | ₹20,966 |
| ₹25 lakh | ₹12.5 lakh | ₹1,75,000 | ₹3,19,800 | ₹46,800 |
The money is not lost from your take-home in a wider sense: it sits in your NPS account and grows until retirement, when part of it is paid out as a lump sum and part has to buy an annuity. The trade is less cash today, a lower tax bill and a larger retirement fund.
How to get it
- Ask HR whether the company offers NPS under its corporate model. Many large employers do; many small ones do not.
- Agree the contribution as a percentage of basic plus DA, up to 14% for the new regime.
- Restructure, don't add. Usually the contribution is carved out of your existing CTC, so your gross salary falls by the same amount and your taxable income falls with it.
- Check your take-home with the in-hand salary calculator before and after.
Frequently asked questions
Is employer NPS contribution allowed in the new tax regime?
Yes. It is deductible up to 14% of basic plus DA under section 124 of the Income-tax Act, 2025, the old 80CCD(2). It is one of the few deductions the new regime keeps.
What is the limit for 80CCD(2) in the new regime?
14% of basic pay plus dearness allowance, for both private-sector and government employees. In the old regime, private-sector employees are limited to 10%.
Can I claim my own NPS contribution in the new regime?
No. Deductions for contributions you make yourself, including the extra ₹50,000, are available only in the old regime.
Is there an upper limit on employer contributions?
Yes. If your employer's contributions to PF, NPS and superannuation together exceed ₹7.5 lakh in a year, the excess and the returns on it are taxed as a perquisite.