Unlike mandatory retirement benefits such as Employees’ Provident Fund (EPF) for eligible establishments, Corporate NPS is a voluntary workplace benefit. Employers can facilitate NPS for their employees and decide the contribution structure as part of their compensation and benefits framework.
Here is how Corporate NPS works and what employees should know.
What is Corporate NPS?
Corporate NPS is the employer-linked version of the National Pension System. Under the model, an organisation registers with the NPS architecture and facilitates accounts for eligible employees.
Employees get an NPS Tier I account, into which contributions can be made by the employee, the employer, or both, depending on the organisation’s policy.
The account is linked to the employee rather than being tied permanently to one employer. This means the NPS account can generally continue when an employee changes jobs.
Is an employer required to contribute?
No. Corporate NPS does not make it mandatory for an employer to contribute to an employee’s NPS account.
The contribution structure can vary across organisations. An employer may contribute to NPS as part of the employee’s retirement benefits, while an employee may also make their own contribution.
This makes it important for employees to check their company’s specific NPS policy, including whether the employer contribution is additional to salary or forms part of the overall compensation structure.
What is the tax benefit?
One of the key attractions of Corporate NPS is the tax treatment of employer contributions.
Under Section 80CCD(2) of the Income-tax Act, an employee can claim a deduction for the employer’s contribution to NPS, subject to the prescribed limits and conditions.
Under the new tax regime, the deduction for employer contributions to NPS is available up to 14% of salary, subject to the applicable rules.
The tax treatment is different from the deduction available for an individual’s own NPS contribution. Employees should therefore look at whether their employer contribution qualifies under Section 80CCD(2) and which tax regime they are using.
Where is the NPS money invested?
NPS is a market-linked retirement product, so the value of the accumulated corpus can rise or fall depending on the performance of the underlying investments.
Subscribers can choose among permitted asset classes and pension funds, subject to the NPS framework and the choices available to them.
This also means NPS returns are not guaranteed in the way a fixed deposit’s interest rate is.
What happens when an employee changes jobs?
The NPS account is portable. An employee does not have to close the account simply because they move to another employer.
The accumulated retirement savings can continue in the NPS, subject to the applicable rules and the new employer’s arrangements if the employee chooses to participate in Corporate NPS at the new workplace.
This portability is one of the important differences between an employer-specific benefit and an individual retirement account that remains with the employee.
What about withdrawals?
NPS Tier I is primarily designed for retirement savings and therefore has specific rules governing partial withdrawals and exit from the scheme.
At retirement or exit, the treatment of the accumulated corpus depends on the applicable NPS rules, including the size of the corpus and the circumstances of exit.
Employees should therefore look at NPS as a long-term retirement product rather than an account meant for regular or unrestricted withdrawals.
Why Corporate NPS matters for employees
For employers, Corporate NPS can form part of the overall retirement and employee-benefits package. For employees, the main considerations are the employer contribution, tax treatment, investment choices and the long-term nature of the product.
The expansion of digital platforms for Corporate NPS is aimed at making onboarding, contribution management and account servicing easier.
However, the decision to participate should ultimately depend on an employee’s retirement goals, tax position and overall asset allocation rather than simply the availability of the benefit.
