Till now (and before Budget 2024), the Section 80CCD(2) allowed deduction in the taxable income from NPS ‘Employer’ contributions of up to 14% of salary (Basic + DA) from government subscribers and 10% of salary (Basic + DA) from non-government subscribers. This deduction was allowed in both the old tax regime and the new tax regime.
Note – The NPS employer’s contribution falls under 80CCD(2) and is separate from the 80C limit of Rs 1.5 lakh per year.
But now, for non-government employees, this limit has been increased to 14%. So this brings private-sector employees tax-deductible NPS employer contribution limit at part with public-sector employees.
However, the increase in exemption to pension contributions has been given only to those who opt for the new tax regime (in a push to further promote the new regime).
Also, note that the maximum employer contribution (which is tax-free) allowed under EPF and NPS together remains at Rs 7.5 lakh per year and there is no increase in this limit. The employer’s contribution to the EPF account shall become taxable if the contribution to EPF, NPS and/or superannuation fund exceeds Rs 7.5 lakh in a financial year. The excess contribution will become taxable.