The National Pension Scheme, introduced by the Government of India in January 2004, aimed to provide pensions to government employees after retirement. Until 2009, the scheme was reserved for government employees only. For non-government employees to enjoy the benefits of the NPS, the NPS Corporate Model was launched in December 2011. Today, the general public in the age group of 18 to 60 years can invest in Tier-1 and Tier-2 accounts of the NPS.
The Corporate National Pension Scheme is designed for all corporates, including private companies, CPSEs, PSUs, etc. Employers can offer the scheme to employees, along with the benefits of Gratuity, Provident Fund, Superannuation, or any other pension funds.
Similar to Employees Provident Fund (EPF), the corporate model of NPS enables both employees and employers to contribute periodically. To build a corpus that results in retirement benefits for NPS employees, 10% of the employee’s salary is deducted for contribution to the scheme. The employer also makes an equal contribution.
Corporate NPS Benefits
- Easy Adoption
An employer can introduce NPS to its employees under the scope of their employee-employer relationship. The scheme can be mandatory or voluntary.
- Low Cost
The administrative costs of NPS are much lesser than other investment options. This is a huge benefit for subscribers. The employer does not need to establish and maintain a Trust or indulge in record-keeping activities regarding the pension for NPS employees. There is also no set-up or maintenance cost.
There are no fixed rules for NPS employee and employer contributions. The employee or the employer can select a pension fund manager. The employees can decide the proportion in which they would like to invest in debt or equity from the options provided. The employees can also choose to leave the allocation in auto mode, wherein the equity exposure reduces as the age of the subscriber increases.
- No Obligation
The corporate is only a facilitator between the subscriber and the pension fund manager. All responsibilities and obligations to maintain the account are with the employee.
- Tax Benefit
Corporate NPS allows senior employees to claim deductions beyond the limit of ₹1,50,000 under Section 80C of the Income Tax Act. The cost-effective investment option allows exposure to equity as per the employee’s age to build a higher retirement corpus with low fund management charges.
Furthermore, Corporate NPS provides triple tax benefits to middle and junior employees. They can opt for equity exposure up to 75%. The scheme is also a systematic investment plan where employees can start investing with only ₹500.
There is also an NPS employer contribution tax benefit. Employers can record the amount they contribute to NPS as a Business Expense in their Profit & Loss accounts to claim the benefits.
- NPS employee death benefits
While the purpose of the National Pension Scheme is to provide monetary support to the employee after retirement, it provides certain death benefits too. In the case of the unfortunate demise of the subscriber before retirement, the nominee can withdraw the money accumulated in the corpus.
Who Can Join Corporate NPS?
- Under the Corporate model, all Indian citizens are entitled to apply for the NPS.
- The age of the subscriber should be between 18 to 60 years on the date of the application.
- The company you are working with should be registered under the corporate model.
EPF Vs. NPS
Many argue that the EPF and NPS are similar. However, there are major differences that you must know of to decide which one is more suitable for you.
The Employee Provident Fund is a mandatory retirement savings scheme, whereas the Corporate National Pension Scheme is a voluntary retirement savings fund. The employee’s contribution to EPF is eligible for tax benefits of up to ₹1,50,000 under Section 80C of the Income Tax Act. On the other hand, the NPS Corporate Model permits employees to claim deductions of ₹50,000 under Section 80CCD (1B) after exhausting the ₹1.5 lakh limit.
Which Companies Can Offer Corporate NPS to Their Employees?
A company must be registered under the Companies Act, 2013, to offer NPS employee retirement benefits. Registered co-operative societies can also make contributions to the employees’ NPS. The corporate model is available for government and affiliated organizations apart from public sector companies. Moreover, proprietary concerns, registered partnership firms, and some foreign companies can also benefit from the NPS corporate model.
The Pension Fund Regulatory and Development Authority (PFRDA) has introduced a separate model of pension schemes for employers. It is available for corporate entities, public sector undertakings, central public sector enterprises, etc. The model, known as the NPS Corporate Model, enables corporates to adopt NPS as a retirement benefits scheme for the employees.