How much of your CTC is worth routing through employer NPS.

The working

How the figure is arrived at

Encoded from Section 124 of the Income-tax Act, 2025 (No. 30 of 2025), read with s.202 for the default regime, s.123 and Schedule XV for your own contribution, and s.17(1) for the aggregate employer ceiling. Not amended by the Finance Act, 2026., read from the enacted Act in the Gazette of India and verified on 9 August 2026.

• Two ceilings apply, and the statutory one is rarely the lower. Section 124 caps the deduction at a share of salary. Your own tax caps what the deduction is worth: once routing has taken taxable income below the point where any tax is charged, the next rupee routed reduces tax by nothing. The amount worth routing is the smaller of the two, and only one of them is printed by anybody else.
• The contribution is money that is already yours to allocate. It sits inside the cost to company either way, so routing is a restructuring rather than a saving: the employer’s outlay does not change, and what changes is which line of the structure the money is on. We hold basic + DA fixed and take the contribution out of the special allowance, which is how a payroll team actually does it — and which keeps the s.124 ceiling, a share of basic, a fixed rupee figure rather than one that shrinks as you route.
• Salary means basic + DA, not gross and not CTC. Salary for the s.124 ceiling is basic pay plus dearness allowance where the terms of employment provide for it — not gross pay and not CTC, which is the same definition the house-rent-allowance test uses. A reader who takes 14% of a cost to company rather than of basic will overstate the ceiling by roughly double.
• Above the ceiling the excess is taxed, not refused. Section 124 does not forbid a larger contribution; it simply stops deducting. So a contribution above 14% of salary leaves the excess inside salary income, where it is taxed at your slab rate — and the money is in the scheme rather than in your account. The panel adds it back rather than quietly dropping it.

The worked example, computed

On ₹14,50,000 of cost to company in Karnataka, new regime, basic + DA at 50%, with an employer already routing the full 14%: basic is ₹6,68,788 for the year, so s.124(2) allows ₹93,630. Taxable income before any routing is ₹12,62,577 and the tax on it is ₹65,080.

Routing ₹62,577 a year — 9.4% of basic — takes taxable income to ₹12,00,000 and the tax to ₹0. Every rupee after that saves nothing, so the last ₹31,053 of the s.124 headroom buys no relief at all. And because the routing crosses the s.156(2) marginal-relief band, where a rupee of income costs a rupee of tax, the ₹62,577 given up saves ₹65,080 — so take-home actually rises by ₹209 a month rather than falling.

That is the shape of the finding rather than a special case: the ceiling is a share of your basic pay and has nothing to do with your tax bill, so the two coincide only by accident. Every published account of this section prints the 14% and stops, which is the number that matters least.

What the tax office does with the figure

The employer’s contribution is included in your salary income and then deducted under section 124, so it nets to nothing while it is inside the ceiling. The mapping from the section number you may know is on our section page for it, read from the enacted text rather than from a summary.

• It reaches you as smaller TDS, not as a refund. Your employer applies the deduction while computing tax to deduct each month, so the saving arrives spread across the year in your salary credit.
• Section 202(2) is why it survives the default regime. Almost every other Chapter VIII deduction is shut off under the new regime; this one is on the short list that is carried into it. The additional deduction under section 124(3) is not, which is why the panel prints its worth as nil whenever the regime control says new.
• The two deductions cannot be claimed for one rupee. Section 124(5) prevents the same contribution being deducted twice, which matters for anyone whose employer routes a contribution and who also pays into the scheme personally.

What “locked away” means, and what changed on 16 December 2025

Everything above is the Income-tax Act. This section is not: the exit and withdrawal rules belong to the scheme’s own regulator, and they are here only because this page tells you that routing costs cash you cannot spend, and that sentence is worth nothing unless we can say what cannot-spend means. Read from the amending notification in the Gazette of India and from the Ministry of Finance release of 19 December 2025 describing it.

• Private sector — the All Citizen Model and the corporate sector · normal exit — on fifteen years of subscription, on turning sixty, or on superannuation or retirement — whichever comes first, at least 20% of the balance must buy an annuity and up to 80% may be taken in cash. Where the balance is ₹8,00,000 or less, all of it may be. regulation 4(1)(a).
• Private sector — the All Citizen Model and the corporate sector · exiting early — on choosing to leave before any of those has happened, at least 80% of the balance must buy an annuity and up to 20% may be taken in cash. Where the balance is ₹5,00,000 or less, all of it may be. regulation 4(1)(b).
• Private sector — joined at sixty or later · exit after joining at sixty or later — at any time, for someone who joined on or after turning sixty, at least 20% of the balance must buy an annuity and up to 80% may be taken in cash. Where the balance is ₹12,00,000 or less, all of it may be. regulation 4(1)(e).
• Government sector · normal exit — on reaching the age of superannuation or retirement fixed by the service rules, at least 40% of the balance must buy an annuity and up to 60% may be taken in cash. Where the balance is ₹8,00,000 or less, all of it may be. regulation 3(1)(a).
• Government sector · leaving before superannuation — on being permitted to resign, or on dismissal or removal from service, at least 80% of the balance must buy an annuity and up to 20% may be taken in cash. Where the balance is ₹5,00,000 or less, all of it may be. regulation 3(1)(b).

The reason this is worth saying plainly: the familiar rule is no longer the rule. Almost every published account of the scheme still says that at least 40% of the balance must buy an annuity. For the private sector that has not been true since 16 December 2025 — the floor is 20% — while for the government sector it is still 40%, so reporting the change as universal is as wrong as not reporting it. The Department of Financial Services’ own page describing the scheme still carried the superseded figures when we read it on 10 August 2026. What changed, what did not, and what we are still unsure of is set out in full in our guide to the exit rules.

What this page does not model

Each of these makes somebody’s real position different from what this page shows, so they are listed here rather than left to be discovered.

• The ₹7,50,000 aggregate ceiling on employer retirement contributions — Income-tax Act 2025, s.17(1)(h) makes your employer's contributions to a recognised provident fund, this pension scheme and an approved superannuation fund a perquisite once they exceed ₹7,50,000 in aggregate for the tax year, and Income-tax Act 2025, s.17(1)(i) taxes the annual accretion on that excess. We have read both, and we still do not compute them, for two reasons worth stating rather than hiding: the Act does not settle on its face how that inclusion interacts with the s.124(1) deduction for the very same contribution, and the accretion is computed “in such manner as may be prescribed”, which is a rule we have not read. On the structures this page models it starts to bite once basic + DA passes about ₹28,84,615 a year — and the panel warns you by name when your own figures cross it, rather than leaving it here.
• What happens to the money once it is in the scheme — This page prices a tax decision, not a pension. The exit and withdrawal rules belong to the scheme's own regulator rather than to the Income-tax Act, and the return depends on a fund choice we know nothing about — so the arithmetic here stops at the year's tax and the year's cash. What we can point at is below, and it matters for reading the cash column: the money is not freely yours again for a long time. The tax at the far end is in the Act: Schedule II (Table, Sl. No. 6) exempts up to 60% of the amount payable when the account is closed, and Schedule III (Table, Sl. No. 4) exempts a partial withdrawal up to 25% of your own contributions.
• Your own contribution inside the section 123 basket — Your own contribution to the scheme is paragraph 1(y) of Schedule XV — inside the ₹1,50,000 section 123 basket rather than beside it, so it competes with provident fund, life insurance and the rest for one ceiling. The regime advisor takes that basket as a single figure, which is the honest shape for it: splitting it would ask you to allocate a limit we would then add back up.
• A contribution the employer pays on top of your CTC — We treat routing as a restructuring: the cost to company is fixed and the contribution comes out of the special allowance. Some employers instead pay the contribution over and above the quoted CTC, which is a pay rise rather than a routing — in that case none of it costs you cash, and the only question left is the ceiling. The tax arithmetic on this page is unchanged; the cash column is not.
• Income that is not salary — The tax saved is computed on salary income alone. Capital gains, house-property income and business income all sit in the same total income, so a reader with any of them may find the deduction lands against a different slab than the one shown here.
• Whether your employer will do it at all — The contribution is the employer's to make, so every figure on this page is contingent on a payroll team agreeing to restructure. Some do it once a year, some at joining only, and some not at all. This calculator does the arithmetic; it does not negotiate.

Questions

Questions people actually ask

How much employer NPS can I claim in FY 2026-27?

Up to 14% of basic + DA under the new regime and 10% under the old. Section 124(1) of the Income-tax Act, 2025 sets the deduction at 10% of salary for a non-government employer, and section 124(2) raises it to 14% where your tax is computed under the rates in section 202(1) — which is the default regime. Salary for the test means basic pay plus dearness allowance where the terms of employment provide for it, not gross pay and not CTC. Anything your employer contributes above that ceiling is not disallowed; it simply is not deductible, so the excess stays in salary income and is taxed.

Should I ask my employer for the full 14%?

That is a question about your own tax rather than about the limit, and the two usually give different answers. Routing pay into the contribution lowers your taxable income, and once the income has fallen far enough that section 156 leaves no tax to pay, the next rupee routed saves nothing at all while still leaving your salary. On the worked example on this page — ₹14,50,000 of cost to company in Karnataka on the new regime — ₹62,577 a year exhausts the entire saving, and section 124 would allow ₹93,630: the last ₹31,053 of that headroom is worth no relief whatsoever. This page computes that point at your own figures.

Is employer NPS allowed under the new tax regime?

Yes, and it is one of very few that are. Section 202(2) of the Income-tax Act, 2025 shuts off most of Chapter VIII under the default regime and carries only a short list into it, of which sections 124(1) and 124(2) are two. It is also the rare deduction that is LARGER under the new regime than the old — 14% of salary against 10% — because section 124(2) exists precisely to lift the ceiling for people taxed under section 202(1). The additional deduction in section 124(3) is a different matter and is not carried across.

What is the difference between the employer contribution and the extra ₹50,000?

They are different money. The employer contribution under sections 124(1) and 124(2) is paid by your employer out of a budget that already contains it — your cost to company — so routing more of the CTC through it costs you cash salary but nothing extra out of your bank account, and it survives the default regime. The additional deduction under section 124(3), the one people know as ₹50,000, is your own money going into the scheme, it is over and above the section 123 basket, and it is an old-regime deduction only. Section 124(5) stops the same rupee being deducted twice. This page prices both.

Does routing pay into NPS reduce my take-home?

Usually, and by less than the amount routed — sometimes by nothing at all. Every rupee routed is a rupee that does not reach your bank account, but it also cuts your tax, so the net cost is the routed amount less the tax saved. Where the routing carries your income down through the marginal-relief band under section 156(2), a rupee of income costs a rupee of tax and the cess on top, so the tax saved is actually larger than the pay given up and your monthly take-home rises. The panel on this page prints both figures and the difference between them, whichever way it falls.

What counts as salary for the 14% limit?

Basic pay plus dearness allowance where the terms of employment provide for it — the same definition the house-rent-allowance test uses, and the same one the Code on Wages holds at half of remuneration. It is not gross pay and it is not CTC. A visitor who takes 14% of a CTC instead of 14% of basic will overstate the ceiling by roughly a factor of two, which is the commonest arithmetic error made about this section. Our CTC to in-hand calculator derives basic from a CTC if that is the only figure you have.

Can I get the money out before I am sixty?

Not freely, and this page deliberately does not model the exit rules. They are the scheme's own rules rather than the Income-tax Act's, they are administered by a different regulator, and we publish a figure after reading a government source rather than before. What we can say with a statute behind it is the part that is on this page: what the routing saves in tax this year and what it costs in cash this year. Everything about when the balance becomes spendable is a question for the scheme, not for us.

Does my salary get sent anywhere?

No. The whole computation runs in your browser and there is no server to send it to. The share link puts your figures in the part of the URL after the "#", which browsers never send to a server at all — so the cookieless Cloudflare beacon that counts this page sees the URL without them. /privacy/ describes exactly what that beacon carries.

The rest of your payslip

This page answers how much of a cost to company is worth putting into the pension scheme. The CTC to in-hand calculator answers what reaches your account each month, the old vs new regime advisor answers which regime costs you less, the HRA exemption checker answers what part of your house-rent allowance escapes tax, and the gratuity and EPF calculator answers what your service is worth when you leave. Every dataset, source and verification date is on the methodology page, and what this site is and is not is on the disclaimer.