Corporate National Pension Scheme (NPS)

Any eligible business entity can enrol its employees under corporate NPS. A few documents required for Corporate NPS registration are mentioned below:

1. CHO Form

2. PAN Card of the company

3. GST Certificate of the company

4. Certificate of Incorporation

Illustrative Example:

Mr A has subscribed for NPS under the corporate NPS model. His annual salary is ₹15 lac p.a. with a basic + Da component of ₹5 lac p.a. He will now get tax benefit of ₹1 lakhs (₹50,000 under individual NPS model and ₹50,000 under corporate NPS model) above his regular tax benefits.

National Pension System (NPS) is a defined contribution pension. NPS is voluntary for subscription by an individual to make contributions to his/her Individual Pension Account during the working life for creating a pension corpus from which regular income will be generated after retirement / working age. NPS is mandatory for the Central Government recruits w.e.f. 1st Jan 2004 (except armed forces) which replaced the earlier defined benefit pension and has been subsequently adopted by almost all State Governments for their employees.

NPS can be extended by an employer as a retirement benefit scheme to the employees and NPS Account having employer-employee relationship (non-government) are classified / categorized as Corporate Sector. An Employer can adopt NPS along with other retirement benefit schemes and contributions towards NPS in Corporate Sector can be either from employer/employee only or from both employer/employee in varied proportions. NPS caters to the Central Government (CG) Sector, State Government (SG) Sector, Corporate Sector and All Citizen Sector.

Register with Central Recordkeeping Agency (CRA) as employer/corporate under NPS Corporate Sector Model by submitting an application - CHO through a registered Point of Presence (PoP) and avail NPS services (such as employee registration, contribution upload, facilitating withdrawals/exit, grievance resolution, change in personal data etc) through the PoP by paying the prescribed fees/charges to PoP. In this model, the employer can avail services of any of the PoPs registered with PFRDA which can subsequently be changed, if need arises.

The following entities are eligible to register as a corporate/employer under NPS Corporate Sector Model through a PoP:

1. Entities registered under the Companies Act, 2013 or a cooperative society registered under any law relating to Co-operative societies

2. Bodies established or incorporated under any act of Parliament, or any law enacted by a state legislature or under any order/notification issued by the Central / State goverment

3. Public Sector Enterprises or any Government company

4. Registered Partnership Firms

5. Limited Liability Partnerships (LLPs)

6. Proprietary Concerns

7. Trusts / Society

8. Foreign companies having registration u/s 591-608 of Companies Act 1956 in respect of their eligible Indian employee(s)

9. Foreign / diplomatic missions operating in India (Embassy/High Commission/Consulate etc.) in respect of their eligible Indian employee(s)

10. International Organizations operating in India (UN / WHO / World Bank / ADB / IMF etc.) in respect of their eligible Indian employee(s)

NPS is mandatory for the Central Government recruits w.e.f. 1st Jan 2004 (except armed forces) which replaced the earlier defined benefit pension and almost all State Governments have adopted NPS for their employees and is applicable as per the terms and date notified by the State Government in their respective gazette notifications. NPS can be introduced by an employer / corporate (entity) for its employees (as a retirement benefit scheme) within the purview of their employer-employee relationship on a voluntary or a mandatory basis. In case the employer adopts NPS as a mandatory retirement benefit scheme for its employees, then all employees should join NPS from the date of adoption by the employer. In case of NPS being implemented on voluntary basis along with other retirement benefit schemes, choice of joining NPS would rest with the employee.

Contributions to NPS are flexible and depending on the employer’s policy on compensation and retiral benefits extended to its employees. The NPS contribution can be either: -

• equal contributions by both employer and employee (say 10% each) or

• unequal by employer and employee (say 10% by employee and 14% by employer) or

• contribution by only employer or only employee There is no mandate for the employer to contribute to employees’ NPS account.

Pension Funds registered with PFRDA are responsible for managing pension corpus in accordance with PFRDA Act, rules, regulations, and investment guidelines issued by the Authority, as amended from time to time. Employer adopting NPS has the option of: -

1. Selecting any one Pension Fund (PF) out the PFs registered with PFRDA for managing the pension wealth of their employees and decide on the asset allocation (active or auto) based on which the NPS contributions will be invested by the Pension Fund.

2. Employer can also allow its employees to exercise these choices (PF C Asset Allocation) at individual/employee level, if found suitable.

If the Employer/Corporate exercises choice of Pension Fund and Asset Allocation on behalf of Employee/Subscriber, then such Employee/Subscriber will have the option to revise the choices after 1 (one) year (i.e. 365 days) or else will continue with the existing choices made by employer (applicable to corporates adopting NPS on or after 14th Nov 2018)

On adoption of NPS by an employer for its employees, the underlying activities get implemented through NPS architecture / platform which obviates the requirement for creation / maintenance of a Trust by the employer.

Yes, the ‘employer contributions’ made in the NPS accounts of their employees (up to 10% of the salary) can be claimed for deduction as ‘Business Expense’ from Corporates Profit C Loss Account as per section 36(1)(iv)(a) of IT Act.

The contributions deducted from the salary of the employee will get invested as per the choices (Pension Fund and Asset allocation) recorded with CRA. The Pension Funds invest the funds according to the investment guidelines prescribed by PFRDA for each asset class.

An employee can make additional contributions to his/her pension account on a voluntary basis apart from the salary deductions, without any restrictions on number of contributions and amount through any of the following modes:

Online mode:

• Web-based (i. login to your Pension Account ii. online facility provided by PoPs iii. eNPS platform of NPS Trust)
• NPS Mobile Application login

Tier-I account – Tax benefits on Contributions:

1. NPS Contributions are eligible for tax deduction u/s 80 CCD (1) of Income Tax Act up to 10% of basic + DA or up to 20% of Gross Income for self-employed within the overall ceiling of ₹1.50 lacs under Sec. 80 CCE.

2. An additional deduction up to ₹50,000/- is available u/s 80CCD 1(B) of Income Tax Act.

3. In case the subscriber receives contributions from the employer also, tax deduction under section 80 CCD (2) of Income Tax Act may be claimed by the subscriber in addition to the tax benefits available under Sec. 80 CCE, subject to an aggregate limit of

   ₹7.5 lakh of contributions made towards NPS, Recognized Provident Fund and Approved Superannuation Fund. ‘Employer contributions’ made by an in the NPS accounts of their employees (up to 10% of the salary) can be claimed for deduction as ‘Business Expense’ from Corporates Profit C Loss Account as per section 36(1)(iv)(a) of IT Act.

Tier-I Account – Tax implications on Withdrawals / Exit

1. Maximum 60% of the total corpus received as lumpsum at the time of exit is not treated as income u/s 10 (12A) of Income Tax Act

2. Amount utilized for purchase of annuity plan from ASP on exit (minimum 40% mandatory up to 100% of corpus) is not treated as income u/s 80CCD (5) of Income Tax Act

3. Goods and Service Tax (currently 1.8%) is not applicable on annuity plan purchased through NPS on exit.

4. Amount received from partial withdrawal are tax exempt u/s 10 (12B) of Income Tax Act.

Tier-II account:

1. No tax benefits are available on contributions made in an NPS Tier-II account.

2. No tax rebates/special treatment for the gains arising out of investment in NPS Tier-II. The assessed shall be liable for taxation as per the marginal tax rate applicable to him/her.