The new tax regime, launched in the February 2020 Budget, took away several deductions that salaried employees once relied on under the old tax regime. But one tax-saving benefit remained available for taxpayers through ‘Corporate NPS‘. Besides helping you save tax, employer contributions to NPS can also give your retirement corpus a useful boost over the long term.
The 14% employer contribution limit has further enhanced the appeal of Corporate NPS for salaried employees in the private sector. The provision, announced in the Union Budget 2024–25, increased the eligible employer contribution from 10% to 14% of salary (Basic + DA) for non-government employees opting for the new tax regime, thereby strengthening both the retirement savings and tax-planning potential of Corporate NPS.
Corporate NPS Subscriber base has increased from 16.8 Lac by the end of FY23 (the new tax regime became the default option from 1st April 2023) to 27.6 Lac in FY26. In FY26 alone, the corporate subscriber base has increased by 21%, as per PPFAS Pension.
Corporate NPS AUM has grown at a faster pace of 25%, whereas the subscriber base has grown at around 20%, highlighting the increasing adoption of NPS among salaried and private-sector employees.
Despite the growing popularity of Corporate NPS, many companies are yet to offer the retirement scheme as part of their employee benefits as more than 20,000 corporate entities have registered for the Corporate NPS as per the PFRDA data which leaves a large number of salaried employees without access to the employer-sponsored NPS route.
However, if your employer offers Corporate NPS, you can potentially make the most of its tax benefits under both the old and new tax regimes based on your salary components, applicable deductions, surcharge, cess and the employee’s tax slabs.
What is corporate NPS?
Corporate NPS is the corporate version of the National Pension System (NPS), accessed through your company. The employer registers with NPS and offers it as a retirement benefit to its employees.
Under this model, employees can make regular contributions in their individual capacity, and employers may also contribute to the employee’s NPS account, subject to the company’s compensation policy. Employers can contribute to NPS on behalf of employees as a certain percentage of salary (Basic + DA), which can be claimed as a tax deduction.
The contributions are invested in a diversified portfolio of equity, corporate bonds and government securities, helping employees build a retirement corpus through disciplined long-term investing and the power of compounding.
Besides strengthening retirement security, Corporate NPS also offers tax benefits on eligible employer contributions under the Income-tax Act.
Corporate NPS under new tax regime: How you can save up to Rs 65,520 in tax?
The tax benefit under Corporate NPS differs significantly between the old and the new tax regimes.
The employer’s contribution to Corporate NPS continues to offer tax benefits under the new tax regime, with the eligible deduction limit being up to 14% of salary (Basic + DA), compared with 10% under the old tax regime, subject to applicable conditions. The benefit is available under Section 80CCD(2) and makes Corporate NPS one of the few tax-efficient retirement planning avenues available to salaried employees under the new regime.
However, note that deductions for an employee’s own NPS contribution are not available in the new tax regime.
According to Abhishek Goenka, Chief Investment Officer, PPFAS Pension, here’s how a Rs 2.1 lakh employer contribution can save you Rs 65,520 in tax.
Example (illustrative) – New Tax Regime:
Assumptions:
Annual CTC/Salary: Rs 30 lakh
Basic Salary + Dearness Allowance: 50% of salary = Rs 15 lakh
Employer contributes 14% of Basic + DA to Corporate NPS
Employee opts for the new tax regime and falls in the 30% tax slab
Calculation:
Employer’s annual NPS contribution = 14% × Rs 15 lakh = Rs 2.10 lakh
This amount is deductible under Section 80CCD(2), subject to the prescribed limits.
Tax saving at a 30% tax rate = Rs 63,000
Including 4% Health & Education Cess, the effective annual tax saving is approximately Rs 65,520.
Example (illustrative) – Old tax regime
Under the old tax regime, the employee can claim a deduction of up to Rs 50,000 for self-contributed NPS under Section 80CCD(1B). In addition, the employer’s contribution to Corporate NPS can qualify for a deduction under Section 80CCD(2).
Considering the above example, the employer contributes 10% of the employee’s basic salary to NPS. With a basic salary of Rs 15 lakh, this works out to Rs 1.5 lakh a year.
Therefore, the employee gets a combined NPS deduction of:
- Self NPS: Rs 50,000
- Corporate NPS: Rs 1.50 lakh
- Total deduction: Rs 2 lakh
This reduces taxable income from Rs 29.50 lakh to Rs 27.50 lakh.
As a result, the estimated tax liability falls from Rs 7,25,400 to Rs 6,63,000, resulting in a tax saving of Rs 62,400 a year.
This illustrates why Corporate NPS is both a valuable retirement benefit and one of the few tax-efficient components available to salaried employees under the new tax regime.
Corporate NPS: A boost to your existing retirement benefits
Simply joining Corporate NPS does not, by itself, reduce or affect an employee’s gratuity, EPF benefits, bonus or other statutory benefits. These benefits are governed by their respective laws, company policies and the employee’s salary structure.
“However, if an employer restructures the salary package to include an employer contribution to Corporate NPS, employees should understand how this affects different salary components, as certain benefits such as EPF contributions or gratuity may be linked to basic salary. Employees are therefore advised to review the salary structure with their employer or HR before opting for Corporate NPS,” suggested Goenka.
“An employee who starts contributing in their 20s or 30s can build a meaningfully larger corpus than someone who starts a decade or more later, purely due to the extra years of compounding. This makes Corporate NPS especially valuable for young and mid-career professionals while still offering real tax and retirement benefits to employees who join later,” said Goenka.
In most cases, Corporate NPS is designed to complement existing retirement benefits by strengthening an employee’s overall retirement savings rather than replacing them.
Corporate NPS: How should you plan asset allocation?
There is no single asset allocation that suits every Corporate NPS subscriber. The right mix depends on factors such as age, financial goals and risk appetite.
Generally, younger employees with a long investment horizon can consider a higher allocation to equities, as they have more time to ride out market fluctuations and benefit from long-term compounding.
As retirement approaches, gradually increasing the allocation to debt can help reduce portfolio volatility and protect the accumulated corpus. NPS offers subscribers the flexibility to choose between Active Choice and Auto Choice, allowing them to adopt an investment strategy that aligns with their individual needs and stage of life.
For subscribers who do not wish to actively manage their investments, NPS also offers the Auto Choice option. Under Auto Choice, the asset allocation is automatically adjusted based on the subscriber’s age.
For example, a 30-year-old subscriber would typically have a higher allocation to equities to benefit from long-term growth, while the equity exposure is gradually reduced and debt allocation increases as the subscriber approaches retirement.
This lifecycle approach helps balance growth in the early years with stability closer to retirement, without requiring the subscriber to periodically rebalance the portfolio.
Conclusion
Employees should not look at tax savings in isolation. The contribution should strike a balance between improving retirement savings and maintaining a comfortable take-home salary for current financial needs.
A common misconception is that Corporate NPS is only about tax savings. In reality, its primary purpose is to help employees build a disciplined retirement corpus through regular contributions, professional fund management and the power of long-term compounding. The tax benefit is an added advantage, but the real value lies in creating long-term financial security and a sustainable source of income after retirement.
Employees should evaluate Corporate NPS as a long-term retirement solution rather than only from the perspective of tax savings or the annuity requirement. While NPS requires a portion of the retirement corpus to be used for purchasing an annuity at retirement, the remaining corpus can be withdrawn as a lump sum.
The annuity requirement is designed to ensure that retirees have a regular income throughout their retirement, reducing the risk of exhausting their savings too early. Therefore, the decision should be based on the overall value proposition: tax benefits, disciplined long-term investing, low fund management costs, the potential for long-term compounding, and the assurance of a lifelong retirement income rather than considering the annuity requirement in isolation.
Corporate NPS works best when it forms part of a well-designed compensation structure, enabling employees to build a meaningful retirement corpus through regular employer contributions and long-term compounding while remaining tax efficient.
Disclaimer: This article is for informational purposes only and should not be construed as investment, financial, tax, or legal advice. Any illustrations, examples, or return projections used in this article are for explanatory purposes only and do not guarantee actual investment outcomes. The views and opinions expressed by experts quoted in this article are their own and should not be considered investment recommendations. Readers should consult a qualified professional before making any financial decisions.
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