National Pension System for Corporate Sector: Check tax benefits of NPS for employees, employers

Updated: Dec 30, 2020 5:26 PM

A small change in the salary structure can benefit employees in saving more tax over and above section 80C and section 80CCD 1(B).

Corporates willing to extend NPS to their Employees need to tie up with any of the approved Point of Presence (POPs) under NPS.

By Mohit Mittal

As per a recent survey, by 2050, every fifth Indian will be 60 years old compared to every 12th at present. There are nearly 100 million people aged 60 or more in India today and the number will triple by 2050; most of them will be financially insecure in the sunset years if a social security net doesn’t start now.

The need of the hour is a multifold increase in pension coverage to the private sector, for which National Pension system(NPS) plays a vital role. Just like Central Government employees, Private Sector Employees can also have pension plans with similar benefits after their Retirement.

‘National Pension System’ (NPS) was initially introduced for Central Government employees with effect from 1st January 2004. Pension Funds PFRDA has also made NPS available to all citizens of India, with effect from 1st May 2009 on a voluntary basis.

In pursuance to PFRDA’s commitment to make available an avenue for saving for old age to all sections of society, PFRDA launched a separate model to provide NPS to the employees of corporate entities, including PSUs in December 2011. This model is titled ‘NPS – Corporate Sector Model’.

A small change in the Salary Structure can benefit employees in saving more tax over & above section 80C limit of Rs 1.50 Lakh and Rs. 50,000 under section 80CCD 1(B) of Income Tax Act, 1961.

The employees of the corporate entity, enrolled by the employer between the age of 18-65 years and complying with the KYC norms, are eligible to be registered as subscribers under NPS.

NPS enjoys EEE status, withdrawal at the time of Exit is completely tax free, which makes it more attractive amongst other investment products.

Corporate Sector model is available to any of the entities under:

  • Entities registered under Companies Act
  • Entities registered under various Co-operative Acts
  • Central Public-Sector Enterprises
  • State Public Sector Enterprises
  • Registered Partnership firm
  • Registered Limited Liability Partnership (LLPs)
  • Anybody incorporated under any act of Parliament or State legislature or by order of Central / State Government
  • Proprietorship Concern
  • Trust/Society

Benefits to Corporate Employees

1. Having a pension plan just like the Government Sector Employees.

2. Flexibility to transfer from One Corporate to another corporate without changing PRAN (Permanent Retirement Account Number).

3. Additional Tax Benefits upto 10% of Basic Salary + Dearness Allowance.

4. Transfer of Superannuation Funds to NPS (One Time-Tax Free)

5. Continue to invest in NPS till 70 years of age.

Tax Benefits for Employees

1) Employee can claim up to 10% of gross income under ceiling of Rs 1.5 lakh under section 80CCE

2) Additional Tax deduction benefit of Rs 50000 under section 80CCD (1B) over and above sec 80 CCE of Income Tax Act 1961.

3) In addition, Employee can claim tax benefit under section 80CCD (2) on employer’s contribution upto 10% salary (Basic + DA) (no limit) over & above both the sections 80C & 80CCD(1B)

Tax Benefits for Employers

Contribution upto 10% of basic salary made towards employee account can be deducted as ‘Business expense’ from their profit and loss account u/s 36. The contribution towards NPS will be over and above the mandatory contribution towards the Employee Provident Fund.

How to Join NPS

Corporates willing to extend NPS to their Employees need to tie up with any of the approved Point of Presence (POPs) under NPS.

Point of Presence (POP) is the interface between the Corporate/Subscribers and the NPS Architecture.

POP will perform the functions relating to registration of Corporate and subscribers, undertaking KYC verification, processing monthly contributions etc.

POPs would also provide services to corporate/subscribers for change in master details, scheme change, POP and PFM Change, exit & Withdrawal etc.

( The author is VP & Product Head Investments, Bajaj Capital)

Get live Stock Prices from BSE, NSE, US Market and latest NAV, portfolio of Mutual Funds, Check out latest IPO News, Best Performing IPOs, calculate your tax by Income Tax Calculator, know market’s Top Gainers, Top Losers & Best Equity Funds. Like us on Facebook and follow us on Twitter.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Submission of investment proof: All you need to know to minimise tax deduction
2CIBIL Score – How it is calculated and why is it important? Find out
3Budget 2021 Expectations: Real estate looks for policy support for recovery, smooth functioning