Corporate NPS Tax Benefits: A Complete Guide

Retirement planning is essential for achieving financial security and the National Pension System (NPS) has become an important resource for both employers and employees. This blog examines the significance of NPS under the corporate sector model and its tax benefits and offers guidance on how organizations can implement it effectively.

What is Corporate NPS? and Its Significance

NPS under the corporate sector model (Corporate NPS) is a government-backed pension scheme designed to provide long-term financial security to employees while offering tax benefits to both employers and employees. By integrating retirement planning into the workplace, organizations can foster a culture of savings, enhance employee satisfaction and comply with evolving tax regulations.

Understanding the tax benefits associated with the Corporate model is crucial for organizations aiming to optimize their financial strategies while supporting their workforce's future needs.

Eligibility to join Corporate NPS:

a. Eligibility for Companies:

The following types of organizations can adopt NPS as a retirement benefit scheme for their employees:

Companies registered under the Companies Act, 2013
Co-operative societies registered under applicable state or central laws
Government-established bodies or entities under any Act of Parliament or State Legislature
Public Sector Enterprises (PSEs) or Government companies
Registered Partnership Firms
Limited Liability Partnerships (LLPs)
Proprietary Concerns
Trusts and Societies
Foreign companies registered under Sections 591–608 of the Companies Act, 1956, for their eligible Indian employees
Foreign diplomatic missions in India (e.g., Embassies, High Commissions, Consulates)
International organizations operating in India (e.g., UN, WHO, World Bank, ADB, IMF)

b. Eligibility for Employees:

Both private and public sector employees are eligible, provided their employer opts for the scheme.

Age eligibility: 18 to 85 years
Mandatory: Completion of Know Your Customer (KYC) norms

Tax Benefits for Employees

Corporate NPS offers substantial tax advantages under various sections of the Income Tax Act:

Section 80CCD(1): Employee contributions are eligible for deduction up to 10% of salary (basic + DA) (subject to the Rs. 1.5 lakh limit under Section 80CCE) under the old tax regime.
Section 80CCD(1B): Additional tax deduction of Rs. 50,000 under the old tax regime.
Section 80CCD(2): Employer contributions are deductible up to 10% of your (basic salary + DA) under the old regime and 14% of your (basic salary + DA) under the new regime. It is subject to a ceiling of Rs. 7.50 lakhs.

These provisions make Corporate NPS an attractive option for salaried individuals looking to maximize their tax savings while securing their retirement corpus.

Advantages of Implementing Corporate NPS (Employer and Employee)

Advantages for Employer:

Corporate Tax Benefits: Employer contributions to NPS (up to 14% of salary, i.e., basic + DA) are treated as a business expense and can be claimed as a deduction under Section 36(1)(iv)(a) of the Income Tax Act, 1961.
Voluntary and Flexible Implementation: NPS can be offered alongside other retirement schemes such as Provident Fund (PF) and Superannuation Fund, enhancing employee retirement planning options.
Corporates have the flexibility to define contribution structures:
- Equal contributions from employer and employee (e.g., 10% each)
- Unequal contributions (e.g., 10% by employee, 14% by employer)
- Contribution by only the employer or only the employee

Advantages for Employee:

Lowest Cost Pension Scheme in India
Multiple Investment Choices
Full Transparency and 24/7 Online Access
Attractive Tax Benefits
Portability and Flexibility
Efficient Grievance Redressal
Tier II Account for Additional Investments.

Steps to Implement Corporate NPS in Organizations

Registration Process: Companies can register with UTI Pension Fund (Registered (POP)) by submitting the CHO form and relevant documents, or you can contact us at contact@utipf.co.in for more details, and our team will connect back.

Conclusion

Corporate NPS is more than just a retirement savings tool; by offering significant tax benefits under Sections 80C, 80CCD(1B), and 80CCD(2), it provides a win-win solution for both employers and employees.

Secure your employees' future and strengthen your organization’s portfolio with Corporate NPS.

Visit your nearest UTI Pension Fund branch or www.utipension.com to open your NPS account today. For more assistance, get in touch with us at contact@utipf.co.in, and our team will be happy to assist you at the earliest.