Corporate NPS and Additional Tax Benefits

In today’s economy, ensuring financial stability and security in retirement has become extremely essential for employees and employers. This financial stability can be brought about by making the best use of the investment and tax-saving opportunities available. NPS is one such facility available to the public. The National Pension System (NPS) in India offers a steady framework for retirement planning. It is one of the most popular opportunities and attracts a large audience due to the advantages it offers. The Corporate NPS (CNPS) provides a structured approach to saving for retirement. It also comes with various tax advantages.

In this blog, we shall explore how the corporate NPS works and dive into the additional tax benefits it offers. We shall also look into why it is such an attractive option for the public. Read till the end.

What is NPS?

The National Pension System (NPS) is a voluntary, defined contribution towards savings for retirement that enables patrons to make the right decision for the future by generating savings throughout their lives. Anyone in the age group of 18–70 years, public or private employee, resident or non-resident, can become a part of the National Pension Scheme program. Section 80CCD(2) of the Income Tax Act covers the contribution of an employee to the NPS. Section 80C of the Income Tax Act covers the tax deduction of ₹1.5 lakh for self-contribution to the National Pension Scheme. Section 80CCD(1B) of the Income Tax Act covers the additional deduction of ₹50,000, which is allowed if a contribution is made towards the NPS.

To know more about NPS in detail, visit our blog here.

What is corporate NPS?

The Corporate National Pension System (NPS) is a savings scheme or plan for a comfortable and financially stable retirement. This scheme was initiated by the Government of India. It aims to provide a sustainable and appropriate pension to employees who work in the government & corporate/private sector. With the advancement and evolution of the economic scenario of the country and the world at large, ensuring a financially stable and secure retirement has become a top priority for all working individuals. The objective of corporate NPS is to bridge the gap between the requirement of a steady retirement corpus and the conventional pension schemes that have started to become inadequate and insufficient in catering to the demands and aspirations of the workforce of today's generation.

Workings of Corporate NPS

Enrollment process

Employers who want to offer NPS to their employees can visit our Pension for Workplace page. Enter their work email and click on "Get Demo". Once the Demo is scheduled, Team PensionBox will walk you through all the offerings, benefits, and processes to enroll your employees and roll out Corporate NPS to them.

Contributions

In the case of contributions, while filling up the CHO/CBO forms in the Enrollment process, the employer can decide how the contributions can be done, whether Employee-only contributions or Employee-Employer contributions.

Since contributions to the NPS account can be made by both the employees and the employer. The contributions are flexible. the employer/HR can decide if there is to be a fixed amount that an employee needs to contribute each month or they can even let the employee decide their preferred contribution amount. However, a minimum contribution of Rs. 6,000 per year is required to keep the account active.

Investment Options

Both NPS & Corporate NPS offer two investment options: Active Choice and Auto Choice. In Active Choice, employees can decide how their funds are allocated among different asset classes (equity, corporate bonds, and government bonds). In Auto Choice, the funds are automatically allocated based on the age of the subscriber, reducing the equity exposure as the subscriber ages.

Account Management

Professional account managers from reputed pension fund managers (PFMs) are in charge of managing the funds in the NPS. These professionals are regulated by the Pension Fund Regulatory and Development Authority (PFRDA). The fund managers use their skills to invest in a diversified portfolio. They aim to generate superlative returns for subscribers. Transparency of processes and accountability in fund management are assured by the PFRDA. With PensionBox, both employees and employers have the liberty to select their own Pension Fund Managers out of the 11 PFMs available.

Additional Tax Benefits of Corporate NPS

Corporate NPS offers additional tax benefits. These are beneficial to both employees and employers. These tax benefits aim at enhancing the retirement experience.

For Employees

• 1. Employee Contribution- A tax deduction can be claimed by employees on contributions to the NPS under Section 80CCD(1) of the Income Tax Act This deduction has a limit of Rs 1.5 lakh under Section 80C.

• 2. Employer Contribution- The employer's contribution to the NPS on behalf of the employee is also eligible for tax deductions. Under Section 80CCD(2), employer contribution up to 10% of salary is allowed in the old tax regime and up to 14% in the new tax regime can be deducted from the employee’s taxable income without any upper monetary limit. This deduction is over and above the Rs 1.5 lakh limit under Section 80C.

• 3. Additional Deduction- An additional tax deduction of Rs 50,000 is available under Section 80CCD(1B) for contributions to the NPS. This is over and above the Rs 1.5 lakh limit under Section 80C.

For Employers

• 1. Business Expense- The employer's contribution to the NPS is considered a business payment under Section 36(1)(iv)(a) of the Income Tax Act This means the employer can claim these contributions as a deduction from their taxable income, thereby reducing their overall tax liability.

2. Employee Welfare- Providing NPS as part of the employee benefits package can help with employee procurement and satisfaction.

Benefits of Corporate NPS

Cost-rewarding investments

Corporate NPS is known for its NO-cost structure compared to other retirement savings schemes. The administrative and fund management fees in NPS get significantly lower, which means that a larger portion of your contributions is invested, leading to potentially higher returns over the long term. This cost efficiency can make a substantial difference in the corpus accumulated by the time you retire.

Portability

The NPS also offers great portability in its structure. This means that an individual can maintain the system flawlessly even if he or she changes jobs and locations. Due to this portability, it is ensured that an individual's retirement savings continue to grow without any turmoil.

Investment Options

You can take advantage of a wide range of investment options offered by NPS. These are available across varied asset classes that include equity, corporate bonds, government securities, and alternative investments. Subscribers can opt for the asset allocation of their choice, considering their risk appetite and financial goals.

The corporate NPS is a great investment opportunity for government & corporate employees and employers. It can help gain remarkable tax benefits and long-term growth potential. It also offers additional tax benefits, which makes it an attractive proposition to the public. PensionBox aims to simplify the retirement planning process so that individuals can make informed decisions about their future.