Tax benefits and Treatment under Corporate NPS

Tax benefits for Employees

Under NPS corporate model employee can deposit contribution directly or she can route the contribution through the
employer she is working with. Both the contributions are eligible for tax deduction as shown below
Type of Tax Benefit Tax Treatment
Contribution

Contribution Up to 40% of
Investment up to 10% of Salary
deposited by Corpus withdrawn in
(Basic + Dearness Allowance) is
Employee lump sum is exempt
deductible from taxable income u/s
80CCD (1) of Income Tax Act, 1961 from tax

subject to 1.5 lakhs limit of section 80C Balance amount

Additionally, investment up to invested in Annuity is

Rs.50,000 is deductible from taxable also fully exempt from

income u/s 80CCD (1B) of Income Tax Act, tax

1961 Pension received

out of investment in
Contribution Investment up to 10% of Salary Annuity is treated as
routed through (Basic + Dearness Allowance) is income and will be taxed
the Employer deductible from taxable income u/s appropriately
80CCD (2) of Income Tax Act, 1961. There
is no cap in terms of absolute value.

Tax benefit u/s 80CCD (1B) and 80CCD (2) are over and above 1.5 lakhs limit u/s 80C.

Tax benefit for Employer

Corporate can avail of tax benefit u/s 36 (i) (IV) of Income Tax Act, 1961, on the contribution deposited by it.

How 80CCD (1B) and 80CCD (2) work?

Corporate needs to re-structure the salary of the employee as shown below:

Head Particulars Without With NPS
NPS
Salary Basic (40% of Gross) 4,000,000 4,000,000

HRA (50% of Basic) 2,000,000 2,000,000

Flexi / Professional Allowance 3,327,600 2,927,60

0
 Corporate Contribution – EPF 480,000 480,000

Corporate Contribution – Gratuity 192,400 192,400

Corporate Contribution - NPS (10% of 0 400,000

Basic)

Gross Salary 10,000,00 10,000,0

0 00

Deduction 80CCE 1,50,000 1,50,000

s
Corporate Contribution – PF 480,000 480,000

Corporate Contribution – Gratuity 192,400 192,400

Corporate Contribution - NPS (80CCD 0 400,000

(2))

Individual Contribution to NPS (80CCD 0 50,000

(1B))

Gross Deductions 822,400 1,272,40

0,

Taxable Salary 9,177,600 8,727,60

0

Change in Taxable Salary 450,000

Tax Saved @ 30% 135,000

How NPS Corporate model works?

In order to offer NPS to its employee corporate needs to register itself through a POP by submitting Corporate
Registration Form and KYC documents as prescribed by the regulator. POP sends these documents to CRA
which creates a Corporate Registration Number called CHO / CBO number.

Upon receiving the CHO / CBO number, Corporate can implement NPS in the system. POP helps create
awareness about NPS to all the employees and organize NPS helpdesks where employees can deposit individual NPS
registration form and KYC documents for NPS account opening.

Once the NPS account of employee is opened, Corporate can start deducting the contribution from monthly salary of
the employee and sends the same to POP for further processing.