Section 124: deduction for pension scheme (NPS) contributions

Employer's contribution - Section 124(1) and (2)

Where an employer contributes to an employee's NPS account, the employee can deduct the employer's contribution up to 14% of salary (where the employer is the Central or State Government) or 10% of salary (for any other employer). Where the employee's income is taxed under the default new-regime rates in Section 202(1), the 10% figure for a non-government employer is raised to 14%.

The individual's own additional contribution - Section 124(3) and (4)

Separately, any individual (whether or not covered by sub-section (1)) can deduct up to ₹50,000 of their own contribution to a notified pension scheme account - this is on top of, and independent of, the ₹1,50,000 ceiling under Section 123.

This ₹50,000 additional deduction is also available where a parent or guardian makes the contribution to a minor's NPS account, though the combined deduction for the parent/guardian and the minor together still cannot exceed ₹50,000.

Key conditions

• No deduction is allowed under Section 124(3)/(4) for any amount that has already been claimed and allowed as a deduction under Section 123 - the two don't overlap.
• Amounts received back from the pension scheme (on closure, opting out, as pension, etc.) on which a deduction was previously allowed are generally taxable when received - the deduction is not a permanent exemption.

Frequently asked questions