Major Update on Corporate NPS in Budget 2024, Explained

Corporate National Pension Scheme (NPS) is a structured retirement savings option increasingly adopted by organizations to provide employees with a robust pension plan. Corporate NPS allows employers to contribute towards their employees' retirement funds, fostering financial security post-employment. Amazingly, it takes only a few minutes to implement Corporate NPS by PensionBox into an organization and leverage these benefits effortlessly by both employee and employer.

Recently, a significant update proposed in Budget 2024 on July 23, 2024, for tax regulations has made Corporate NPS more appealing. In her Budget 2024 Speech, Finance Minister Nirmala Sitharaman announced a notable increase in the deduction limit for employer contributions to NPS from 10% to 14% of an employee’s basic salary + DA, applicable to both private and government sector employees opting for the new tax regime.

This change aims to boost social security benefits by enabling employers to allocate up to 14% of an employee’s salary towards NPS contributions. Similarly, employees in the private sector, public sector banks, and undertakings can now avail of enhanced deductions under Section 80CCD(2) of the Income-tax Act when opting for the new tax regime. This change empowers employees to save more on taxes while augmenting their retirement savings.

Under the current tax laws, the tax benefits associated with NPS depend on the chosen tax regime—old or new. The old regime permits deductions under three sections: 80CCD(1), 80CCD(1B), and 80CCD(2). Section 80CCD(1) allows a maximum deduction of 10% of salary or Rs 1.5 lakh (whichever is lower) for investments in NPS Tier-I, within the overall limit of Rs 1.5 lakh under Section 80C. Section 80CCD(1B) provides an additional deduction of up to Rs 50,000 exclusively under the old tax regime. Meanwhile, Section 80CCD(2) allows deductions for employer contributions, capped at 10% of salary under both tax regimes, but now extended to 14% for those in the new tax regime.

It's important to note that if employer contributions to NPS, Employees’ Provident Fund, and superannuation funds, together exceed Rs 7.5 lakh annually, the excess becomes taxable for employees. Moreover, interest earned on these excess contributions is also subject to tax.

At the time of withdrawal, at least 40% of the NPS corpus must be used to purchase an annuity plan, with the remainder available as a tax-exempt lump sum. However, the annuity received is taxable under the head "Income from other sources," without the benefit of standard deduction.

Update — NPS exit rules changed in December 2025. The 60% / 40% split described above was the rule up to that point. It is left here on purpose, because a lot of older paperwork and third-party calculators still quote it. Under the PFRDA (Exits and Withdrawals under NPS) Amendment Regulations notified on 16 December 2025, a non-government subscriber (All Citizen and Corporate NPS) taking normal exit can now withdraw up to 80% as a lump sum, with a minimum 20% annuity. By corpus: up to ₹8 lakh — the entire amount can be withdrawn; above ₹8 lakh and up to ₹12 lakh — up to ₹6 lakh as lump sum, with the balance going into an annuity or a Systematic Unit Redemption spread over at least six years; above ₹12 lakh — up to 80% lump sum with a minimum 20% annuity. For premature exit there is no longer any minimum subscription period, and a corpus up to ₹5 lakh can be taken in full. One caution on tax, because it is a separate question from the withdrawal limit: Section 10(12A) exempts 60% of the corpus, and whether the extra 20% of lump sum is tax-free has not been settled — do not plan around it without checking. (Source: PFRDA FAQs on Exits and Withdrawals from NPS, All Citizen Model, updated March 2026.)

Recent updates by the Pension Fund Regulatory and Development Authority (PFRDA) now allow NPS subscribers to withdraw up to 60% of their corpus through a systematic lump sum withdrawal (SLW) method, offering flexibility in managing retirement funds. Partial withdrawals are also permissible under specific conditions, such as higher education or marriage expenses, provided the subscriber has been a member for at least three years.

In conclusion, Corporate NPS offers substantial tax benefits and retirement security improvements for both employers and employees. The revised deduction limits define its viability as a long-term retirement planning tool under the new tax regime. So, if you are an employer looking forward to implementing retirement-centric benefits with tax benefits for your employees, do it today with Corporate NPS by PensionBox- Get Demo! In case, you're an employee and want to get Corporate NPS for your organization, you can do it too with PensionBox by Connecting Us to your HR!