Moment guide · FY 2026-27

I am contributing extra to NPS for the 80CCD(1B) deduction

Is the extra ₹50,000 NPS deduction available in the new regime?

The extra ₹50,000 NPS deduction under section 80CCD(1B) is available only in the old regime — it does not work in the new regime. Your own Tier 1 contribution under 80CCD(1) sits inside the ₹1.5L 80C ceiling, also old-regime only, while the employer's contribution under 80CCD(2) is allowed in both regimes. On withdrawal, up to 60% of the corpus is tax-free but the 40% annuity is taxable, so NPS is EET, not fully exempt.

The #1 trap

Believing the ₹50,000 80CCD(1B) deduction works in the new regime. Only the employer's 80CCD(2) contribution survives the new regime; your own 80C/80CCD(1) and the extra 80CCD(1B) are old-regime benefits. Also, the 40% of the NPS corpus that buys an annuity is taxable on withdrawal — NPS is EET, not fully exempt like PPF.

Priya, IT professional contributing to NPS Tier 1

Priya's basic pay plus DA is ₹12,00,000 and she contributes ₹1,20,000 to NPS Tier 1, which is exactly 10% of basic plus DA. Under section 80CCD(1) that ₹1,20,000 is eligible within the ₹1.5L 80C ceiling, and she tops up her Tier 1 account with a further ₹50,000, which is deductible under section 80CCD(1B) as an extra over and above 80C. In the old regime her total NPS-related deduction is ₹1,70,000: ₹1,20,000 under 80CCD(1) and ₹50,000 under 80CCD(1B), both reducing slab-rate income. Her employer also contributes ₹1,20,000 to her NPS, and under 80CCD(2) the employer's 10% of basic plus DA is deductible in the old regime. If Priya opts for the new regime, the picture changes completely: her own ₹1,70,000 of contributions are not deductible because new-regime taxpayers lose 80C, 80CCD(1) and 80CCD(1B), but the employer's ₹1,20,000 under 80CCD(2) still reduces her new-regime income. On exit, 60% of her corpus can be withdrawn tax-free and 40% must purchase an annuity, and the pension income from that annuity is taxable in the year received. The 'NPS is fully tax-free' belief is therefore wrong: the accumulation is tax-deductible only in the old regime and the annuity leg is taxed. Priya runs both regimes side by side before choosing, because the extra ₹50,000 deduction can tip the old regime ahead when her 80C stack is already full. A quick call with us dials in the final figure. Priya also notes that the ₹50,000 80CCD(1B) contribution must be to a Tier 1 account; contributions to Tier 2 do not qualify for the extra deduction. She checks her NPS statement before filing, because the portal generates Form 10C and the annual statement that the return asks for, and the deduction is claimed against gross total income, not net. If her basic salary rises next year and her 80C stack fills with EPF, the 80CCD(1) portion within 80C may crowd out other investments, so she plans the split annually. On the withdrawal side, she knows that a partial withdrawal of up to 25% of her own contributions is allowed for specified purposes and remains tax-free, while the 60% lump sum at retirement is exempt and the 40% annuity is taxable at slab in the year of receipt. A quick call with us dials in the final figure.