Corporate National Pension System (NPS)

NPS is mandatory for the Central Government recruits w.e.f. 1st Jan 2004 (except armed forces) which replaced the earlier defined benefit pension and almost all State Governments have adopted NPS for their employees and is applicable as per the terms and date notified by the State Government in their respective gazette notifications. NPS can be introduced by an employer / corporate (entity) for its employees (as a retirement benefit scheme) within the purview of their employer-employee relationship on a voluntary or a mandatory basis. In case the employer adopts NPS as a mandatory retirement benefit scheme for its employees, then all employees should join NPS from the date of adoption by the employer. In case of NPS being implemented on voluntary basis along with other retirement benefit schemes, choice of joining NPS would rest with the employee.

Contributions to NPS are flexible and depending on the employer’s policy on compensation and retiral benefits extended to its employees. The NPS contribution can be either:-

• equal contributions by both employer and employee (say 10% each) or
• unequal by employer and employee (say 10% by employee and 14% by employer) or
• contribution by only employer or only employee There is no mandate for the employer to contribute to employees’ NPS account.

Pension Funds registered with PFRDA are responsible for managing pension corpus in accordance with PFRDA Act, rules, regulations, and investment guidelines issued by the Authority, as amended from time to time. Employer adopting NPS has the option of:-

1. Selecting any one Pension Fund (PF) out the PFs registered with PFRDA for managing the pension wealth of their employees and decide on the asset allocation (active or auto) based on which the NPS contributions will be invested by the Pension Fund.
2. Employer can also allow its employees to exercise these choices (PF & Asset Allocation) at individual/employee level, if found suitable.

If the Employer/Corporate exercises choice of Pension Fund and Asset Allocation on behalf of Employee/Subscriber, then such Employee/Subscriber will have the option to revise the choices after 1 (one) year (i.e. 365 days) or else will continue with the existing choices made by employer (applicable to corporates adopting NPS on or after 14th Nov 2018)

On adoption of NPS by an employer for its employees, the underlying activities get implemented through NPS architecture / platform which obviates the requirement for creation / maintenance of a Trust by the employer.

Yes, the ‘employer contributions’ made in the NPS accounts of their employees (up to 10% of the salary) can be claimed for deduction as ‘Business Expense’ from Corporates Profit & Loss Account as per section 36(1)(iv)(a) of IT Act.

The contributions deducted from the salary of the employee will get invested as per the choices (Pension Fund and Asset allocation) recorded with CRA. The Pension Funds invest the funds according to the investment guidelines prescribed by PFRDA for each asset class.

An employee can make additional contributions to his/her pension account on a voluntary basis apart from the salary deductions, without any restrictions on number of contributions and amount through any of the following modes:

Online mode:

1. Web-based (i. login to your Pension Account ii. online facility provided by PoPs iii. eNPS platform of NPS Trust)
2. NPS Mobile Application login

Tier-I account – Tax benefits on Contributions:

1. NPS Contributions are eligible for tax deduction u/s 80 CCD (1) of Income Tax Act up to 10% of basic + DA or up to 20% of Gross Income for self-employed within the overall ceiling of INR 1.50 Lacs under Sec. 80 CCE.
2. An additional deduction up to INR 50,000/- is available u/s 80CCD 1(B) of Income Tax Act.
3. In case the subscriber receives contributions from the employer also, tax deduction under section 80 CCD (2) of Income Tax Act may be claimed by the subscriber in addition to the tax benefits available under Sec. 80 CCE, subject to an aggregate limit of INR 7.5 lakh of contributions made towards NPS, Recognized Provident Fund and Approved Superannuation Fund. ‘Employer contributions’ made by an in the NPS accounts of their employees (up to 10% of the salary) can be claimed for deduction as ‘Business Expense’ from Corporates Profit & Loss Account as per section 36(1)(iv)(a) of IT Act.

Tier-I Account – Tax implications on Withdrawals / Exit

1. Maximum 60% of the total corpus received as lumpsum at the time of exit is not treated as income u/s 10 (12A) of Income Tax Act
2. Amount utilized for purchase of annuity plan from ASP on exit (minimum 40% mandatory up to 100% of corpus) is not treated as income u/s 80CCD (5) of Income Tax Act
3. Goods and Service Tax (currently 1.8%) is not applicable on annuity plan purchased through NPS on exit.
4. Amount received from partial withdrawal are tax exempt u/s 10 (12B) of Income Tax Act.          

Tier-II account:

1. No tax benefits are available on contributions made in an NPS Tier-II account.
2. No tax rebates/special treatment for the gains arising out of investment in NPS Tier-II. The assessee shall be liable for taxation as per the marginal tax rate applicable to him/her.