It is mandatory for all central government employees who joined after January 1, 2004, to apply for the NPS.
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The National Pension Scheme (NPS) is a highly regarded method for securing one’s retirement and enjoying tax benefits simultaneously. It offers individuals a reliable means to safeguard their future while also providing significant tax-saving opportunities. In a recent interview with Money Control, Deepak Mohanty, Chairperson of the Pension Fund Regulatory and Development Authority (PFRDA), highlighted the immense potential of NPS, noting that although around 13,000 corporates are associated with the scheme, only a limited number of employees have enrolled so far.
The NPS offers two approaches. First, there is the All Citizens model, which enables any citizen above 18 years of age to opt for NPS. The second method involves taking NPS as an employee. By selecting NPS as an employee, individuals can benefit from tax deductions under Section 80C of the old tax regime.
Under 80C, tax deductions can be claimed for amounts up to INR 1.5 lakh. However, with NPS, employees can avail of tax benefits on contributions up to 10 per cent of their salary and dearness allowance under Section 80CCD (1). Additionally, there is a separate tax benefit of up to INR 50,000 under Section 80CCD (1B).
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A noteworthy aspect to consider is that a company’s NPS contribution is separate from the Employees’ Provident Fund (EPF). Employees must continue contributing to EPF as per the company’s policies. The decision to contribute to NPS is entirely at the company’s discretion and forms part of an employee’s Cost To Company (CTC).
When a company opts to contribute to its employees’ NPS, these contributions are factored into the salary structure. However, it is ultimately the employee’s choice to enrol in NPS. Upon joining the NPS, individuals are issued a Permanent Retirement Account Number (PRAN). Employees who wish to receive NPS contributions from their company can provide their PRAN number to the company if the salary structure permits NPS contributions.
It is essential to note that all central government employees who joined after January 1, 2004, are required to apply for NPS, except the Armed Forces. Moreover, many state governments have also made NPS available as an option for their employees.
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For companies, contributing to their employees’ NPS also carries tax benefits. The expenses incurred by the company for NPS contributions are considered business expenses, and taxes are calculated after deducting the same amount from the company’s earnings. As a result, companies are eligible for tax exemptions under the Income Tax Act.
