This guide covers FY 2025-26 (AY 2026-27). Use the rules for your income year when comparing regimes. The section numbers below refer to the Income-tax Act, 1961.
Which NPS deductions qualify?
| Contribution | Old regime | New regime |
|---|---|---|
| Your own Tier-I contribution: 80CCD(1) | Within the shared ₹1.5 lakh 80C/80CCC/80CCD(1) ceiling; employee contribution limit also applies | Not deductible |
| Additional own contribution: 80CCD(1B) | Up to ₹50,000, without claiming the same contribution twice | Not deductible |
| Employer contribution: 80CCD(2) | Qualifies, subject to the employer limit below | Qualifies, subject to the employer limit below |
These deductions are listed in the Income Tax Department's AY 2026-27 guidance.
Employer limits depend on the regime
| Employer | Old regime | New regime |
|---|---|---|
| Private sector or PSU | 10% of eligible salary | 14% of eligible salary |
| Central or State Government | 14% | 14% |
For this purpose, salary includes qualifying dearness allowance but excludes other allowances and perquisites. The employee limit under 80CCD(1) is 10% of this salary. See Section 80CCD, including the new-regime amendment.
With ₹6 lakh eligible salary, a private employee's employer deduction ceiling is ₹60,000 in the old regime and ₹84,000 in the new. The actual contribution must still be made; a higher ceiling does not create an automatic deduction.
Employer NPS is included in salary income before the eligible deduction is claimed. Do not both exclude it from gross income and subtract it again. The Income Tax Department's salary guide explains this treatment.
Worked example: ₹15 lakh gross salary
Assume a resident private-sector employee under 60, basic salary ₹6 lakh, no DA, no other income, and no HRA exemption. Gross salary is ₹15 lakh including ₹60,000 employer NPS where applicable. In the no-NPS case, that ₹60,000 is paid as cash instead, keeping the gross total constant.
Old-regime deductions: standard deduction ₹50,000, eligible 80C payments ₹1,50,000, separate personal NPS ₹50,000, employer NPS ₹60,000 and eligible 80D premium ₹25,000. Total: ₹3,35,000.
| Case | Deductions | Taxable income | Annual tax including 4% cess |
|---|---|---|---|
| Old regime with those deductions | ₹3,35,000 | ₹11,65,000 | ₹1,68,480 |
| New regime, ₹60,000 employer NPS plus ₹75,000 standard deduction | ₹1,35,000 | ₹13,65,000 | ₹88,140 |
| New regime, no employer NPS; ₹75,000 standard deduction | ₹75,000 | ₹14,25,000 | ₹97,500 |
Our calculations apply the official AY 2026-27 slabs and cess. For example, new-regime tax on ₹13,65,000 is ₹20,000 + ₹40,000 + ₹24,750 = ₹84,750 before cess. No rebate, marginal relief or surcharge applies to these examples.
Here, the new regime with employer NPS costs ₹80,340 less tax than the old-regime case. Within the new regime, redirecting ₹60,000 to NPS saves ₹9,360 tax, but reduces annual cash after tax by ₹50,640. The ₹60,000 remains invested for retirement. Tax savings and take-home pay are different measures.
This calculator has no employer-NPS or separate personal-NPS deduction input, so it cannot reproduce all columns of the worked example. Do not enter NPS as an unrelated deduction or exclude it from salary to force a match. Use the table and a payroll calculation that handles the eligible NPS deductions for each regime.
Before changing payroll
Ask payroll to show the contribution, eligible salary base, total compensation and resulting cash pay separately. Compare the full year's deductions before choosing a regime.
A tax deduction alone does not establish whether NPS suits your retirement plan. Check the current PFRDA exit and withdrawal regulations for your subscriber category and exit circumstances, and verify the separate tax treatment of withdrawals. Do not assume one withdrawal split applies to every subscriber.
FAQ
The follow-up questions people usually ask after the main recommendation is already clear.
Is personal NPS contribution deductible in the new regime?
For FY 2025-26, personal Tier-I contributions under Sections 80CCD(1) and 80CCD(1B) are deductible only in the old regime. Employer contributions under 80CCD(2) can qualify in both.
Does the 14% employer NPS limit apply in both regimes?
For private-sector and PSU employees, the limit is 10% of eligible salary in the old regime and 14% in the new regime. Central and State Government employees have a 14% limit in both. These are deduction ceilings, not guaranteed contributions.
Does moving salary to NPS increase take-home pay?
A deduction can reduce tax, but moving cash salary into a retirement account also reduces spendable pay. In the example below, redirecting ₹60,000 saves ₹9,360 in tax and reduces annual cash after tax by ₹50,640.