As Budget 2026 draws closer, expectations are growing around a possible increase in the additional tax deduction available under the National Pension System (NPS). The current limit of Rs 50,000 under Section
80CCD(1B) could be raised to Rs 1 lakh, offering more tax-efficient retirement savings options to taxpayers.
If implemented, the move could bring meaningful relief to middle-income earners and encourage higher participation in long-term pension planning.
Salaried employees likely to gain the most
According to Rajarshi Dasgupta, Executive Director (Tax) at Aquilaw told Moneycontrol, salaried individuals are likely to benefit the most from a higher NPS deduction due to their existing tax profiles.
“Reduced tax liability can be significant for salaried individuals who otherwise fall into higher tax brackets,” Dasgupta told Moneycontrol.
He added that government employees already have structured pension arrangements, including NPS or legacy pension schemes, so higher deductions may not materially alter their tax burden. For them, the benefit is more about long-term retirement income than immediate tax savings.
Self-employed need targeted push
Dasgupta said the self-employed remain under-covered when it comes to retirement savings, as they do not have access to EPF.
“If a higher NPS deduction is introduced specifically for the self-employed, it could significantly boost retirement savings behaviour, as this group forms a large share of India’s workforce,” he told Moneycontrol.
How much tax can one save?
Dasgupta noted that the tax benefit from a higher NPS cap depends on the marginal tax rate. “If the limit is raised to Rs 1 lakh or Rs 1.2 lakh, a middle-income earner earning Rs 8–15 lakh annually could save Rs 10,000–21,000 in tax from the incremental deduction alone,” he said.
Will NPS replace EPF, PPF or insurance?
Rohitaashv Sinha, Partner at King Stubb & Kasiva, said Moneycontrol, a higher NPS limit will not replace existing savings instruments.
“An enhanced NPS limit would rebalance retirement planning by promoting market-linked pension savings, rather than replacing EPF, PPF or insurance-linked products,” Sinha told Moneycontrol.
Dasgupta echoed this view, saying differences in risk, liquidity and purpose mean these instruments will continue to coexist.
Tax sops alone not enough
While higher deductions can help expand NPS participation, experts caution that tax incentives must be supported by broader policy measures to truly bridge India’s retirement savings gap.
