Navigating the intricacies of the National Pension Scheme (NPS) can be a daunting task for both employers and employees alike. From understanding the employer's contribution limits to grasping the additional tax benefits, there's a myriad of factors to consider when delving into the world of NPS.
In this blog, we will answer some of the most pressing questions surrounding NPS contributions, tax advantages, and the overall scheme's applicability. Whether you're an employer looking to optimize your company's benefits package or an employee seeking to secure your financial future, this guide aims to shed light on all things NPS.
Let's dive in and demystify the complexities of the National Pension Scheme.
- How much is the employer's contribution to the NPS?
For corporate employers, the upper limit set for monthly contributions furnished to an employee's account is 10% of their salary (basic + DA). However, in the case of Central Government employees or bank staff, the thumb rule for employer NPS contribution limit is 14%.
Saving via the National Pension Scheme will be vital as your tier-1 account will attract long-term compounded returns through market instruments. Also, you will enjoy tax benefits of up to Rs.2 Lakhs by investing in NPS.
- What is the additional tax benefit for an employer's National Pension Scheme?
An employer can enjoy additional tax benefits by contributing towards their employee’s NPS account (up to 10% of their salary). This component of the company’s cost is later on added to their “P&L” account as a business expense.
The Government allows tax benefits on this amount under Section 36 (i) (IV) of the Income Tax Act. However, there’s an upper limit for this tax-deductible income which is Rs.7.5 Lakhs.
Therefore, to initiate an NPS employer contribution, one can contact any POP-SP or directly visit the eNPS portal and start contributing to an individual’s NPS Tier-1 account.
Please note: Tax advantages are only offered to investors against their Tier-1 NPS accounts.
- Can you still opt for an NPS account if your employer is not a part of NPS?
Even if your employer is not registered under the NPS you can still open a personal NPS account separately. The most convenient way of opening an account is to visit the eNPS portal and fill out the Subscriber Registration Form.
Otherwise, you may also physically visit a Point of Presence outlet to fetch the application form and submit it along with the necessary documents.
Additionally, you can also suggest your employer to initiate the National Pension Scheme as that would help them avail tax benefits. If the company agrees, you can shift your account later on to corporate NPS.
Even when the above scenario doesn’t take place and you continue contributing to your account regularly, you can enjoy tax benefits of up to Rs.1.5 Lakhs u/s 80CCE and 80CCE(1B). While for corporate NPS, an additional Rs.50,000 or 10% of the salary (Basic + DA) becomes eligible for tax deduction under Section 80CCD(2).
Learn more about this at https://soundcloud.com/nps-ki-pathshala-podcast/9-additional-benefits-you-get-if-your-company-adopts-nps
- How can government NPS beneficiaries select investment options via online login?
Any NPS subscriber can select their choice of Pension Funds and asset mix by completing the CRA login process. The PFRDA has approved the complete accessibility of the NPS accounts on the subscriber's end to simplify the operations.
However, to authenticate the portal login, you have to enter the OTP sent to your NPS account-linked phone number. Investment choices can be edited a maximum of 4 times a year. Thus, it is advised to thoroughly assess the performance of your Pension Fund and asset mix before setting new preferences.
In the latest Central Recordkeeping Agency (CRA) system, any online request made from your end can be self-authorized. Hence, you do need to wait for any written affirmation from the nodal office while mentioning a particular Scheme Preference.
- Is it mandatory for the employer to contribute to the NPS?
No, the NPS employer contribution isn’t mandatory but optional. Yet, many companies these days do provide the NPS facility so that they themselves can avail tax advantages as per Section 36 (i) (IV) of the Income Tax Act, 1961.
As the regular contributions come under valid expense deductions for the business, the Government considers such costs as tax-deductible income. Not only it encourages NPS participation but also it reduces the tax burden of employers.
To learn more about this question, listen to https://soundcloud.com/nps-ki-pathshala-podcast/can-you-still-open-nps-account-if-employer-is-not-a-part-of-nps-1
- Is NPS mandatory for PSU employees?
The NPS is compulsory for all Central Government employees. Also, all State Governments have agreed upon extending the benefits of the National Pension Scheme to their staff.
Nevertheless, the employer's monthly contribution towards an individual's NPS account should be within 14% of his salary. The CRA system to monitor the NPS transactions for government employees is set by the employers themselves. Employees can track the statement as the Nodal Office keeps on updating the particulars from time to time.
