NPS Employer Contribution U/S 80CCD (2)

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This discussion clarifies how employers can contribute to their employees' National Pension System (NPS) accounts. It explains that employers need to register for NPS and typically contribute 10% of the employee's basic salary plus Dearness Allowance (DA), which is tax-deductible up to a certain limit. While the employer's contribution is part of the Cost to Company (CTC), it is not directly shown as a deduction on the payslip but is accounted for under tax benefits.

Ratheesh

Ratheesh (Querist)
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14 May 2021 Dear Sir,

Please help me to understand NPS Contribution from Employer.

1. If One employer need to contribute NPS to their employees, what needs to be done for this ?
2. How to decide contribution amount ? Is there any limit ?
3. If one employee CTC is 5 Lakh, then Contribution amount is taken from 5 Lakh ? or Company contribute ?
4. Same will be reflect in Payslip ? I mean , this will show any component like NPS (Both earning and deduction side)
5. Tax Eligibility

Please help me to understand steps by steps.

Regards
Ratheesh

CMA Poornima Madhava

CMA Poornima Madhava (Expert)
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14 May 2021 1) First, an account will be opened for the employee by the employer (similar to EPF) and the payment will be made by the employer to the account of employee
2) Usually 10% of salary is contributed by the employer
3) Yes, employer also will contribute equal share. However, employee can make voluntary contribution too.
4) Yes, as deduction in payslip
5) Employee's contribution up to 10% of salary u/s 80CCD(1) [max 1.5 lacs] and additional contribution up to 50k u/s 80CCD(1B) are allowable deductions.

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Ratheesh

Ratheesh (Querist)
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14 May 2021 Thanks Mam for your help. So my understanding is

-Employer has to get Registered for NPS and contribute to NPS Investments.
-Contribution amount need to show in deduction side like PF

And below are my queries

-10% of Salary Contribution means 10% of Gross ? 10% of Basic ?. Is this maximum limit ?
-Contribution amount is not taxable ? Since it showing only deduction side its not part of Gross income ?
-If only employer contribution, need to show in Payslip (as deduction) ?

Apart from that How to get registered ?

Awaiting your reply. Thank you so much for your immediate response.

Regards
Ratheesh

CMA Poornima Madhava

CMA Poornima Madhava (Expert)
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14 May 2021 1) 10% of salary is basic (+ DA if applicable). This is the max limit for tax deduction.
2) Contribution up to the specified limit is an allowable deduction (as earlier mentioned) under Income Tax Act.
3) Employer's contribution will not be shown in the payslip but it will be part of CTC. Employer's contribution up to 10% of salary is not taxable.
4) Individuals can open an NPS account online: https://www.npstrust.org.in/content/open-your-nps-account-online

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