Section 124 of the Income-tax Act, 2025 (effective from 1 April 2026) replaces the provisions that were earlier covered under Section 80CCD of the Income-tax Act, 1961. It provides tax deductions for both employer and employee contributions to notified pension schemes such as the National Pension System (NPS).
🏢 Employer Contribution Deduction
If your employer contributes to your NPS account, you can claim a deduction for the contribution made by the employer up to:
| Employer Type | Maximum Deduction |
|---|---|
| Central Government / State Government | 14% of Salary |
| Other Employers (Private Sector) | 10% of Salary |
| Taxpayers opting for the new tax regime under Section 202(1) | 14% of Salary |
“Salary” for this purpose includes Dearness Allowance (if it forms part of retirement benefits) but excludes other allowances and perquisites.
👤 Employee’s Own Contribution
An individual can claim a deduction of up to ₹50,000 for contributions made to their own NPS account during the financial year. This deduction is over and above the deductions available under Section 123.
📌 Example 1 – Private Sector Employee
Assume:
• Basic Salary + DA = ₹10,00,000
• Employer NPS Contribution = ₹1,00,000 (10%)
• Employee NPS Contribution = ₹50,000
Deduction available:
| Particulars | Amount |
|---|---|
| Employer Contribution Deduction | ₹1,00,000 |
| Employee Contribution Deduction | ₹50,000 |
| Total Deduction under Section 124 | ₹1,50,000 |
📌 Example 2 – Government Employee
Assume:
• Salary = ₹12,00,000
• Employer Contribution = 14% = ₹1,68,000
• Employee Contribution = ₹50,000
Deduction available:
| Particulars | Amount |
|---|---|
| Employer Contribution | ₹1,68,000 |
| Employee Contribution | ₹50,000 |
| Total Deduction | ₹2,18,000 |
👶 Contribution to Minor’s NPS Account
A parent or guardian contributing to a notified pension account of a minor can claim a deduction. However, the combined deduction for self-contribution and contribution to the minor’s account cannot exceed ₹50,000.
⚠️ Important Conditions
- No double deduction is allowed. If an amount has already been claimed under Section 124, it cannot be claimed again under Section 123.
- Amounts used to purchase an annuity in the same tax year are not treated as received for taxation purposes.
- Special provisions have been introduced for the Unified Pension Scheme (UPS) and taxation of withdrawals on retirement or superannuation.
🚀 Quick Summary
| Benefit | Deduction Limit |
|---|---|
| Employer Contribution (Govt Employer) | Up to 14% of Salary |
| Employer Contribution (Private Employer) | Up to 10% of Salary |
| Employer Contribution (New Tax Regime under Section 202(1)) | Up to 14% of Salary |
| Employee’s Own Contribution | Up to ₹50,000 |
| Minor’s Pension Account Contribution | Included within ₹50,000 limit |