Understanding corporate NPS and its tax benefits


The National Pension System (NPS) is a government-backed pension financial product, which was initially started for government employees in 2004 to provide retirement income. Later, the scheme was opened to all Indian citizens including the workers of the unorganised sectors for voluntary investments in 2009.  In 2011, the Indian government introduced a special model for corporate employees under NPS. This model is called the “NPS Corporate Model”.

What is corporate NPS?

The NPS corporate model is a customised version of NPS for corporate employees wherein the employer, in addition to the employee, can voluntarily contribute on behalf of the employee to the employee’s NPS account. Both private and public sector employees can choose to invest in NPS under the NPS corporate model.

How can you open your corporate NPS account?

All the corporate employees working in a company registered under the corporate NPS sector model can open their NPS accounts online. The organisation’s human resource department validates the subscriber’s employment details.

In case of offline registration, you must submit the NPS registration form attested by your company’s human resource department along with the required KYC documents. Note that for your contribution through the eNPS portal, you may have to incur nominal NPS contribution charges.

What are the benefits of NPS for corporate employees?

Corporate NPS is a financial instrument that assists you to save for your retirement days and hence, plan out your finances properly for a secure financial future. Discussed here are some of the NPS benefits.

  • NPS tax benefits

Corporate NPS allows you to save tax. You can get NPS tax deductions under section 80CCD(1B) and section CCD(2). As per section 80 CCD(1B), you can claim a deduction of up to Rs 50,000. This tax deduction is available over and above the tax deduction of Rs 1.5 lakh under section 80C. As per section 80CCD2, NPS contribution on account of the employer’s contribution of up to 10% of the employee’s salary also qualifies for a tax deduction.

  • Market-linked returns

Corporate NPS allows you to divide your corpus across four asset classes. As per your preference, you can invest in corporate debt, equity, government assets and securities, and alternative assets. However, before you make your investment, you must define your asset allocation percentage. To make an informed decision, you can use an online corporate NPS calculator. Using the calculator, you can estimate the returns that you may earn over time. Like the benefit of SIP route, NPS also provides you with the same benefits of the compounding effect, flexible investment, and the potential to accumulate higher returns over the long term.

  • Portability

While corporate NPS is a scheme that encourages employer contribution on your behalf, this does not make the scheme unportable. Corporate NPS investment allows portability. This means, if you migrate to any other state within India or switch jobs, your corporate NPS would stay the same and allow further top-ups.

  • Employee benefits

As you are allowed to maintain the same NPS account until retirement, this offers you the scope to generate long-term returns and subsequently manage your funds. Also, owing to the flexible nature of NPS, you get the option to spread your investment funds across different asset classes. In case you are new to investing, you can select the ‘auto’ investment mode, where your NPS investments will be allocated across asset classes in a predetermined manner, based on your age and risk tolerance.

Ending note

Corporate NPS is an initiative by the Indian government to provide all corporate employees with a chance to generate long-term wealth for their post-retirement years. Besides offering the potential to generate long-term financial security, the scheme also allows you to avail tax benefits.