Section 80CCD(1), 80CCD(1B), and 80CCD(2): A Complete Guide for FY 2024-25
If you're planning to reduce your income tax burden while securing your retirement, then understanding Section 80CCD under the Income Tax Act is crucial. This section covers deductions available on contributions made to the National Pension System (NPS).
Here's a detailed look at how Section 80CCD(1), 80CCD(1B), and 80CCD(2) work, and how you can leverage them to maximise your tax savings.
What is Section 80CCD?
Section 80CCD is a sub-section under the broader umbrella of Section 80C, which deals with deductions on investments. Specifically, 80CCD relates to contributions to the NPS, introduced by the Government of India to promote long-term retirement savings.
Breakdown of Section 80CCD
1. Section 80CCD(1): Employee or Individual Contributions
Applicable to: Salaried employees and self-employed individuals
Deduction limit:
10% of salary (Basic + DA) for salaried individuals
20% of gross total income for self-employed
Maximum deduction allowed under Section 80C + 80CCC + 80CCD(1): ₹1.5 lakh
Example: If your salary is ₹10,00,000, then a contribution of ₹1,00,000 to NPS is eligible under 80CCD(1), subject to the ₹1.5 lakh overall cap.
2. Section 80CCD(1B): Additional Deduction for NPS
Introduced in Budget 2015
Additional deduction up to ₹50,000 exclusively for NPS contributions
Available over and above the ₹1.5 lakh limit under Section 80C
Benefit: Even after exhausting your ₹1.5 lakh limit under 80C, you can still claim an additional ₹50,000 under 80CCD(1B), totaling up to ₹2 lakh in deductions.
3. Section 80CCD(2): Employer Contributions
Applicable only to salaried employees
Deduction on contributions made by the employer to the employee’s NPS account
Limit:
Up to 10% of salary (Basic + DA)
14% for Central Government employees (as amended)
Note: This is over and above the deductions claimed under Section 80C and 80CCD(1B), making it a powerful tax-saving tool, especially in high-income salary structures.
How Much Can You Save in Total?
| Section | Type | Maximum Deduction |
|---|---|---|
| 80CCD(1) | Self Contribution (within 80C limit) | ₹1.5 lakh |
| 80CCD(1B) | Additional Self Contribution | ₹50,000 |
| 80CCD(2) | Employer Contribution | No monetary cap; typically up to 10% of salary |
Total potential deduction: ₹2 lakh+ depending on employer contribution
Why Invest in NPS?
Long-term wealth creation for retirement
Tax-efficient instrument
Flexible fund management (Active and Auto Choice)
Partial withdrawal allowed under specific conditions
Vizzve Finance Insight
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Conclusion
Understanding the nuances of Section 80CCD(1), 80CCD(1B), and 80CCD(2) can unlock additional tax savings beyond the usual ₹1.5 lakh limit. For both salaried and self-employed individuals, NPS is a robust and tax-efficient tool for retirement planning.
Keep following Vizzve Finance for actionable insights on taxation, personal finance, and investment strategies that help you make smarter money decisions.
Frequently Asked Questions (FAQs)
Q1. Can I claim both 80CCD(1) and 80CCD(1B) deductions?
Yes, 80CCD(1B) provides an additional ₹50,000 deduction over and above the ₹1.5 lakh cap under 80CCD(1) and Section 80C.
Q2. Is employer contribution under 80CCD(2) part of the ₹1.5 lakh limit?
No, 80CCD(2) is over and above the ₹1.5 lakh limit, making it an extra tax benefit.
Q3. Are NPS withdrawals taxable?
Yes, but with exemptions. 60% of the corpus withdrawn at maturity is tax-free, and the rest is used to buy an annuity (which is taxable as income).
Q4. Is 80CCD applicable to self-employed individuals?
Yes, but only Sections 80CCD(1) and 80CCD(1B) apply to self-employed taxpayers. 80CCD(2) is for salaried employees only.
Q5. Can I invest in NPS without a job or regular income?
Yes, anyone between 18–70 years can open an NPS account and contribute as per their preference.
Published on: July 27, 2025
Published by: Selvi
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