Corporate NPS (National Pension System) offers a strategic tax planning opportunity for employers to benefit their employees with a diverse superannuation portfolio. In this article, we explore the advantages of adopting Corporate NPS and how it can be managed efficiently.
Why?
As per the new tax regime, taxpayers are not eligible to claim the deductions under Section 80C and investment in NPS u/s 80CCD (1) and Section 80CCD (1B) but they are eligible to claim a deduction under Section 80CCD(2) i.e. contribution by the employer. Section 80CCD(2) can be availed under both regime.
Tax implications?
On Employee:- Employer’s NPS contribution (for the benefit of employee) up to 10% of salary (Basic + DA), is deductible from taxable income under Section 80 CCD(2).
Section 17(2) of the Income Tax Act provides that in case aggregate of employer’s contribution towards employee’s employee provident fund, National Pension System and Superannuation exceeds seven lakhs fifty thousand in a year, the excess shall be taxed as perquisite in the hands of the employee. In view of this, while opting by employees, it may be noted that Upper limit of tax benefit is Rs. 7.5 lakh after accumulating all employer contribution towards PF/PENSION/NPS etc (time to time amendment comes for upper cap, earlier it was. Rs. 1.5 lakhs only). Gain to employees for those who opts, and no financial impact to those who opts out initially or mid way.
On Employer:- Employer’s Contribution towards NPS up to 10% of salary (Basic + DA) can be deducted as ‘Business Expense’ from their Profit & Loss Account under Section 36 (i) (IV) of the Income Tax Act 1961. No Financial impact on Employer.
Diversion/Multiple superannuation avenues required?
It is true that many of us spend little time planning our retirement. We rely on EPF accumulations to come to our rescue. But for some of us, things have changed or soon will. Central government and a lot of private employers have moved to NPS. Multiple retirement portfolio helps to mitigate forthcoming risks.
Is it easy to manage on part of employer:-
Yes, many leading banking institute offer this facility eg HDFC etc.
https://www.hdfcpension.com/corporate-nps/tax-benefits-under-corporate-nps/
How to give options to employees in Organization:-
A tab can be made under perquisite statement whereby employees are given option to exercise this benefit with max 10% , considering 10% of basic only being DA remains variable.
Or, any other best suitable option by HR&A where employee reach to opt is higher.
Conclusion: Corporate NPS offers a valuable tax planning avenue for both employers and employees. By embracing multiple retirement options and encouraging participation in NPS, organizations can enhance their employees’ financial security while enjoying tax benefits. With efficient management and support from leading banking institutes, Corporate NPS can become an integral part of a well-rounded superannuation portfolio for employees, securing a stable retirement future.
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