What Is 80CCD(2)?

There are many tax saving opportunities available inside the tax framework of India. Once such opportunity is the Section 80CCD(2) of the Income Tax Act, 1961. As per this section, salaried individuals that contribute to the National Pension System (NPS) can get tax deduction. While other deductions depend on how much you contribute, the situation with Section 80CCD(2) is different. This section is directly connected to the employer’s contribution to your NPS account. 

What Makes Section 80CCD(2) Special?

This benefit is designed exclusively for salaried employees working in the private or government sector. Self-employed individuals cannot claim this deduction. The key highlight is that this deduction applies only to the amount your employer contributes on your behalf. This makes it “extra” because it does not eat into the usual ₹1.5 lakh limit under Section 80C that covers common tax-saving investments.

What is the Amount of Money You Can Claim?

The limit of deduction limit for you is determined by the type of employment you have:

• Private sector employees can claim a deduction of up to 10% of their salary, calculated as basic salary plus dearness allowance.
• Government employees enjoy a higher limit of 14% of their salary.

This structure ensures that employees across sectors receive a meaningful tax benefit aligned with their compensation.

Available Under Both Tax Regimes

Another major advantage is that Section 80CCD(2) stays valid under both the old and the new tax regimes. With many traditional deductions removed under the new regime, this provision becomes even more valuable for those looking to optimise their tax outflow.

Overall Contribution Cap

There is, however, a combined annual ceiling of ₹7.5 lakh on employer contributions to NPS, recognised provident funds, and superannuation funds.

• Under the old tax regime, any contribution above this limit becomes taxable.
• Under the new tax regime, the complete ₹7.5 lakh limit is available under Section 80CCD(2) itself.