Section 80CCD is the Income Tax Act section that allows tax deductions on eligible contributions to notified pension funds such as the National Pension System (NPS). The key difference between section 80CCD 1 vs 2 is that while section 80CCD(1) allows deduction for your own contribution to the pension fund scheme, section 80CCD(2) allows deduction for an employer’s contribution to your pension fund.
What Is Section 80CCD?
Deductions under section 80CCD are available in respect of contributions towards eligible pension funds schemes like the National Pension System (NPS). The relevant sub-sections are 80CCD(1), 80CCD(1B) and 80CCD(2). These allow deduction for your own contributions to NPS (80CCD(1)), additional deduction for own contributions (80CCD(1B)), and deduction for your employer’s contribution to your NPS account (80CCD(2)) respectively.
What Is Section 80CCD(1)?
As mentioned above, section 80CCD(1) allows deduction for your own contributions to the eligible pension funds scheme. For employees, this means contribution to their NPS account, up to 10% of salary (basic + dearness allowance). For self-employed persons, it means contribution to their NPS account, up to 20% of gross total income. This deduction, however, is clubbed with other deductions under section 80CCE (capped at ₹1.5 lakh). It is important to remember that 80CCD(1) deduction is not over and above the ₹1.5 lakh deduction under section 80CCE.
What Is Section 80CCD(1B)?
Unlike deductions under 80CCD(1) which are clubbed with other deductions under 80CCE, deductions under section 80CCD(1B) are available in addition to the ₹1.5 lakh deduction under 80CCE. This sub-section allows an additional deduction of up to ₹50,000 for contributions made by you towards your NPS account. It should also be noted that deduction under 80CCD(1B) is available only if you make additional contribution towards NPS, apart from deduction claimed under 80CCD(1).
What Is Section 80CCD(2)?
Section 80CCD(2) allows deduction for contribution made by your employer towards your NPS Tier I account. This deduction is not clubbed with other deductions under section 80CCE. In case of the new tax regime (FY2025-26), deduction under 80CCD(2) will be available up to 14% of salary (basic + DA). However, for the old tax regime, deduction for employer’s contribution shall be available up to 10% of salary (14% for government employees).
Section 80CCD(1) vs 80CCD(2): What Are the Differences?
The differences between section 80CCD(1) and 80CCD(2) can be summarised as follows:
Particulars Section 80CCD(1) Section 80CCD(2)
Who contributes? Your own contribution Employer’s contribution
Eligibility Salaried employees and self-employed persons Only salaried employees can claim it
Deduction limit 10% of salary or 20% of gross total income (whichever is lower) 14% of salary (basic + DA) for FY2025-26 (10% or 14% for private or government employees, respectively, for old regime)
₹1.5 lakh deduction under 80CCE? Part of deduction under 80CCE Not part of deduction under 80CCE
Available under new tax regime? 80CCD(1) is NOT available under the new tax regime. 80CCD(2) IS available under the new tax regime
Nature Of Contribution Self-contribution Employer’s contribution
80CCD(1) vs 80CCD(2) Under the Old and New Tax Regimes
Is 80CCD(1) available in the new tax regime? Deductions under section 80CCD(1) and 80CCD(1B) are not available under the new tax regime. Thus, if you have opted for the new tax regime, you cannot claim any deductions for your contributions towards NPS. As for 80CCD(2), the deductions for employer’s contributions are available under the new tax regime, up to 14% of salary (basic + DA). Thus, if you want to claim deduction under 80CCD(1) and 80CCD(1B), you will have to choose the old tax regime.
Who Is Eligible to Claim 80CCD(1) and 80CCD(2)?
Who can claim 80CCD(1)? In general, any individual employee can claim deductions under 80CCD(1). Thus, it is available to both salaried and self-employed persons, subject to the respective salary/ income limits mentioned above. As for who can claim 80CCD(2), since this deduction is for employer’s contribution towards NPS, only salaried employees can claim it. Self-employed persons do not have an employer, and thus cannot claim deduction under 80CCD(2).
How Can You Claim 80CCD(1), 80CCD(1B) and 80CCD(2) Together?
Can you claim deduction under 80CCD(1), 80CCD(1B) and 80CCD(2) together? Yes, you can claim deductions under all three sections together, but under the old tax regime. Also note that while deductions under 80CCD(1) and 80CCD(1B) are clubbed with other deductions under 80CCE (capped at ₹1.5 lakh), deduction under 80CCD(2) is claimed separately. This means that the ₹1.5 lakh deduction under 80CCE will apply to deductions under 80CCD(1) and 80CCD(1B), but not to deductions under 80CCD(2).
Example of 80CCD(1) and 80CCD(2) Tax Deductions
Let us take an example for better understanding. Say, Rohan is a private sector employee who earns ₹9,00,000 per year, and has opted for the old tax regime:
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He contributes ₹1,20,000 towards his NPS account. This can be claimed as a deduction under 80CCD(1), up to 10% of his salary.
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He contributes an additional ₹30,000 towards his NPS. This can be claimed as a deduction under 80CCD(1B), up to ₹50,000.
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His employer has contributed ₹90,000 towards his NPS. This can be claimed as a deduction under 80CCD(2) of up to 10% of his salary.
As you can see, deduction under each section was claimed separately. All three contributions were made towards the same NPS account.
Common Mistakes to Avoid While Claiming Section 80CCD Deductions
Below are some of the most common mistakes people make while claiming deductions under section 80CCD:
Mistake Correct View
Treat employer’s contribution and your own contribution as one and the same thing. You should claim deduction for your own contribution under 80CCD(1), and deduction for employer’s contribution separately under 80CCD(2).
Assume that deduction under 80CCD(1B) is clubbed with deduction under 80CCE Deduction under 80CCD(1B) is an additional deduction of up to ₹50,000, available on top of the ₹1.5 lakh deduction under 80CCE.
Claim deduction under 80CCD(1) and 80CCD(1B) while filing under the new tax regime. Deductions under 80CCD(1) and 80CCD(1B) are not available under the new tax regime. If you file your taxes under the new tax regime, you will not be able to claim any deduction for your contribution towards NPS.
Contribution towards Tier II of NPS is treated the same way as contribution towards Tier I. Deductions under 80CCD are available only for contribution towards Tier I of NPS. The contribution towards Tier II does not attract any tax benefits.
Conclusion
To conclude, while 80CCD(1) allows deduction for your contribution to NPS, 80CCD(2) allows deduction for contribution made by your employer to your NPS account. Whether you can claim deduction under these sections, and how much deduction you are eligible for, depends on several factors, including your employment status, contribution mode, etc.
FAQs on Section 80CCD(1) vs 80CCD(2)
What is the main difference between 80CCD(1) and 80CCD(2)?
The main difference between 80CCD(1) and 80CCD(2) is that while the former allows deduction for your contribution to pension funds scheme such as NPS, the latter allows deduction for your employer’s contribution to your NPS account.
Is 80CCD(2) over and above the ₹1.5 lakh limit?
Yes, deduction under section 80CCD(2) is not clubbed with other deductions under section 80CCE. Thus it is available over and above the ₹1.5 lakh deduction under 80CCE.
Can I claim both 80CCD(1) and 80CCD(2)?
Yes, you can claim both 80CCD(1) and 80CCD(2), if you are eligible for both. This would be possible if you are a salaried employee who makes contributions towards your NPS account.
Is 80CCD(1) available under the new tax regime?
No, deduction under 80CCD(1) is not available under the new tax regime. If you have filed your income tax return under the new tax regime, you will not be able to claim any deduction for your contribution towards NPS.
What is the maximum deduction available under 80CCD(2)?
For FY2025-26, deduction under 80CCD(2) is available up to 14% of salary (basic + DA). For old tax regime, it would be 10% of salary for private sector employees, and 14% of salary for government employees.
What is the difference between 80CCD(1) and 80CCD(1B)?
While deduction under 80CCD(1) is clubbed with other deductions under 80CCE (up to ₹1.5 lakh), deduction under 80CCD(1B) is available in addition to deduction under 80CCE.
Disclaimer
Past performance may or may not be sustained in future and should not be used as a basis for comparison with other investments. Returns under NPS are subject to market risk and are prone to fluctuation depending on the state of the Financial market.
Investors are advised to consult their own legal, tax and financial advisors to determine possible tax, legal and other financial implication or consequence of subscribing to the schemes of DSP Pension Fund Managers Private Limited. Tax laws are subject to change.
