As per Income Tax Law, employer's contribution is firstly added in gross salary and then contribution of employer as well as employee is added to calculate deduction u/s 80CCD. Section 80 CCD (1) deals with employee's contribution and 80 CCD (2) deals with employer's contribution.
Earlier, maximum deduction in subsection (1) for employee's contribution was limited to lower of 10% of salary and Rs. 1,00,000.
However, since AY 2016-17, ceiling of Rs. 1,00,000/- for employee's contribution has been done away thus leaving maximum deduction limit to 10% of salary.
Now, a new deduction upto maximum of Rs. 50,000/- is also given for employee's contribution u/s 80 CCD(1B). Deduction under sub section (1B) is available over and above subsection (1) if employee's contribution exceeds 10% of salary.
In subsection (2), maximum deduction against government contribution is limited to 10% of salary.
As per section 80 CCE, total of deductions under 80C, 80CCC and 80CCD(1) cannot exceed Rs. 1,50,000 in a given financial year since AY 2016-17. Deduction for Govt. contribution in NPS is not covered by limit of Rs. 1,50,000/- given in section 80CCE.
Further, if employee's contibution in NPS u/s 80 CCD(1) is below Rs. 1,50,000/-, than he may avail deduction u/s 80C for remaining amount. Additional contribution in excess of 10% of salary made u/s 80 CCD(1B) is not included in maximum limit of Rs. 1,50,000/-.