Special benefits on contribution by corporates under NPS

CA. Heet Shah | Last updated: 28 August 2021

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Quick Summary

The National Pension System (NPS) offers tax deductions under Section 80CCD, encouraging savings for retirement. While employees can claim deductions for their contributions, employers also gain significant advantages. Corporate contributions to employee NPS accounts are eligible for deduction as a business expense, and employees also receive this as a personal deduction, creating a 'double benefit' for a single expense.

What is Deduction under section 80CCD?

It is a scheme introduced to cultivate a habit to save money for pension. It is available to any person between the age group of 18-65 years. It is the equity-linked investment option in the market. The minimum investment in NPS could be Rs.1000 whereas there are no limits for Upper Cap. Since it is a market driven Investment fund, NAV of the fund needs to be considered while making investments. The higher the contribution one makes towards the scheme, higher is the retirement corpus. Moreover, an advantage of the power of compounding makes NPS a more lucrative option.

NPS Corporate Contributions: Tax Benefits Explained

One may register on https://enps.nsdl.com/eNPS/OnlineSubscriberRegistration.html?appType=main for Individual there is also an option to register as corporate under which a single payment for all employee can be made.

One may refer to https://www.npscra.nsdl.co.in for further detailed info.

Tax incentives under Scheme

Deduction under 80CCD(2) is for Contribution by employer whereas 80CCD (1) & (1B) deal with contribution by employee or self employed person.

Deduction under 80 CCD (1) is restricted upto 1.5 Lakh (The cap of 1.5 lakh is including 80C as 80CCE). Deduction under 80CCD(1B) provides an extra deduction over and above the cap limit mentioned in 80CCE.

Furthermore an employer can contribute 10% of basic pay & Dearness Allowance (14% in case of Govt employees) which can also be claimed as deduction for Business Expense and the same would also be available to employee as deduction so basically a double benefit is enjoyed for a single expense.

FAQ :

Section 80CCD relates to deductions available for contributions made towards the National Pension System (NPS), a scheme designed to promote pension savings.

Any individual between the ages of 18 and 65 years can contribute to NPS. It also allows for corporate registrations where a single payment can be made for all employees.

Deductions under Section 80CCD(1) are capped at Rs. 1.5 lakh (inclusive of 80C limits under 80CCE). An additional deduction is available under 80CCD(1B) above the 80CCE cap.

Employers can contribute up to 10% of basic pay and dearness allowance (14% for government employees). This contribution is deductible as a business expense for the company and also available as a deduction for the employee, offering a double benefit.

The 'double benefit' arises because the employer's contribution to an employee's NPS account is treated as a business expense deduction for the company, and simultaneously, the employee can claim this same contribution as a personal deduction.