Employer NPS Contribution Limit: 10% or 14%? (FY 2026-27)

If your employer offers 'corporate NPS', part of your pay can go into your NPS account as an employer contribution, and that part can come off your taxable income. How much can come off is where most pages disagree. Some say 10%, some say 14%. Both numbers are in the law. Which one is yours depends on your employer and your tax regime.

The rule, from the Income-tax Act, 2025

From 1 April 2026 the old section 80CCD(2) lives in section 124 of the new Act. Section 124(1) allows a deduction for the employer's contribution up to a percentage of your salary, and section 124(2) changes that percentage for anyone taxed under the new regime.

Central or State Government employer: up to 14% of salary, in either regime.
Private employer, OLD tax regime: up to 10% of salary.
Private employer, NEW tax regime: up to 14% of salary.
'Salary' here means basic pay plus dearness allowance (if your terms include DA). HRA, special allowance and other allowances do not count.

Source: Income-tax Act, 2025, section 124, Income Tax Department

Old vs new regime: which one saves you more

A worked example

Basic plus DA of ₹60,000 a month is ₹7,20,000 a year. On the new regime with a private employer, the employer can put up to 14% of that, ₹1,00,800 a year, into your NPS, and the whole amount comes off your taxable income. If your top slab is 20%, that saves about ₹20,966 a year in tax including the 4% cess. On the old regime the same employer's limit is 10%, ₹72,000.

Anything the employer puts in above the limit is not lost; it simply is not deductible and is taxed as part of your salary.

The ₹7.5 lakh ceiling across PF, NPS and superannuation

There is a second, separate cap. If your employer's contributions to your provident fund, NPS and any superannuation fund together cross ₹7.5 lakh in a year, the excess (and the returns on it) is taxed as a perquisite. Most salaried people are far below this. It matters at high salaries, where 12% PF plus 14% NPS on a large basic can cross it.

Your own contribution is a different deduction

The employer's contribution (section 124(1) and (2)) is allowed in both regimes.
Your own extra NPS contribution, up to ₹50,000 a year under section 124(3) (the old 80CCD(1B)), is an old-regime deduction. On the new regime it does not reduce your tax.
So on the new regime, employer NPS is one of the very few ways left to cut taxable salary.

Should you ask HR to restructure your CTC?

Usually the employer NPS contribution comes out of your existing CTC, not on top of it. Moving pay into NPS lowers your tax but also lowers your take-home today, and NPS money is locked until 60 (with limited partial withdrawals). At exit, part of the corpus comes out as a lump sum (up to 60% of the corpus is tax-free) and the rest buys an annuity, whose pension is taxable; PFRDA's withdrawal rules decide the split. If you would otherwise spend that money, it is a good trade. If you need the cash for a home loan EMI or an emergency fund, take-home matters more than the tax saved.

NPS calculator: what the corpus and pension could look like In-hand salary calculator

Frequently asked questions

What is the employer NPS contribution limit for FY 2026-27?: Up to 14% of salary (basic + DA) for government employers and for anyone on the new tax regime. For a private employer on the old regime, 10%. This is section 124 of the Income-tax Act, 2025.
Is employer NPS contribution allowed in the new tax regime?: Yes. The employer's contribution is deductible in the new regime, up to 14% of basic plus DA. Your own additional ₹50,000 contribution is not.
What does 'salary' mean for the NPS limit?: Basic pay plus dearness allowance where your terms of employment include DA. Other allowances and perquisites are excluded.
Is there an upper rupee limit on employer NPS?: The deduction itself is a percentage, but employer contributions to PF, NPS and superannuation together above ₹7.5 lakh a year are taxed as a perquisite.
What happened to section 80CCD(2)?: From 1 April 2026 it is section 124(1) and (2) of the Income-tax Act, 2025. The old section applies to contributions for years before that.

Educational content, not financial advice. Figures are illustrative and based on the rules current at the time of writing; verify specifics with a qualified advisor.