In this blog, we see the following points of NPS registration for employers.
- What is the National Pension Scheme?
- Types of NPS Accounts
- Employer’s Roles in NPS
- What are the benefits of NPS for employers?
- National Pension Scheme Eligibility
- NPS registration for employers
- How much tax exemption should be calculated under NPS if the employee submits a declaration?
What is the National Pension Scheme?
The National Pension Scheme (NPS) is a pension and investment scheme launched by the Government of India to provide old age security to its citizens. It offers a safe and regulated market-based return, making it an attractive long-term savings option for those planning for retirement.
The National Pension Scheme (NPS) is managed by the Pension Fund Regulatory and Development Authority (PFRDA). It is a market-linked, defined contribution product that assigns each subscriber a unique Permanent Retirement Account Number (PRAN) maintained by the Central Recordkeeping Agency (CRA).
Types of NPS Accounts
There are two types of accounts available under NPS – Tier-I and Tier-II.
- The Tier-I account is a pension account with limited withdrawals, while the
- Tier-II account is voluntary and offers liquidity of investments and withdrawals. However, it can only be opened if the subscriber has an active Tier-I account.
- The contributions made to the NPS account accumulate over time and grow with market-linked returns until retirement.
Employer’s Roles in NPS
Employers can create an account and contribution towards NPS on behalf of their employees. Under the NPS, the employers’ contribution to the NPS account on behalf of their employees will have tax benefits on their contribution. The employer can contribute up to 10% of the employee’s salary (basic plus DA) or 14% of salary (in the case of Central Government, Central Autonomous Bodies, and Bankers employee account). Such contributions will be listed under Section 80CCD(2) of the Income Tax.
NPS scheme provides a platform for employers to co-contribute for its employees or facilitate them to contribute for their pension. There are three variations of contributions from employer and employee:
- Equal contributions by employer and employee
- Unequal contribution by the employer and the employee
- Contribution from either the employer or the employee
What are the benefits of NPS for employers?
The following are the features of NPS for employers –
- Employers will contribute to their employees’ NPS accounts and receive tax benefits on such contributions. 10% of the salary (basic and dearness allowance) of employers Contribution can be deducted as “Business Expense” from their Profit & Loss Account. If the employer is the Central Government, then they will contribute 14% of the employee’s salary.
- Employers would have the flexibility to decide investment choices either at the employee level or at the company level centrally for all its underlying employees. Employers can also select a PFM at the company level and allow the underlying employees to decide the allocation of funds among the three asset classes viz: Equity, Corporate Debt, and Government Security.
- The eNPS portal allows employers to monitor and review employee NPS accounts online. Employers can also generate reports and statements from this portal.
- The employer can offer various facilities and services related to NPS to their employees, including online registration, contributions, withdrawals, and grievance redressal. Employers can also educate and motivate their employees about the benefits and features of NPS.
National Pension Scheme Eligibility
All employees employed by the employer will be eligible for the NPS contribution employer’s contribution can be equal to or higher than the employee’s contribution. Please note that Section 80CCD (2) applies only to salaried individuals
NPS registration for employers
As an employer looking to register for the National Pension Scheme (NPS), follow the process of NPS registration for employers –
- Visiting the eNPS website of NSDL-CRA.
- To register, you will need to complete an online registration form, upload the required documents, and make an initial contribution to your NPS account.
- Now, You will also need to choose a Point of Presence (POP) from the list of empanelled POPs who will act as your intermediary for NPS transactions.
- Once you have completed the registration process, you will receive a Permanent Retirement Account Number (PRAN), which will act as your unique identity for NPS.
As an employer, you have the option to contribute to your employees’ National Pension System (NPS) accounts under the corporate model.
On creation of employee accounts in NPS by the employer, the same will be communicate to the employees, and the employee can also view their account details.
- Login to CRA system
- Enter user ID and password (as given by employer)
- Go to the “Subscriber Registration” menu and navigate “Corporate Employee Confirmation.”
- Search records to be verified through PRAN, Acknowledgment No. or Date Range
- Verify subscriber details
- Accept/Reject the registration/association of PRAN
- Confirmation is displayed post the successful acceptance of the subscriber as an employee.
How much tax exemption should be calculated under NPS if the employee submits a declaration?
The tax exemption under NPS depends on the type and amount of contribution made by the employee and the employer.
Basically, there are the 3 sections under which NPS contributions are eligible for tax benefits.
Section 80CCD (1)
Employees can claim a deduction on their contribution to the NPS account. This deduction is calculated as 10% of their salary (basic plus dearness allowance) or Rs. 1.5 lakh, whichever is lower. It’s important to note that this deduction falls under the overall limit of Rs. 1.5 lakh that’s set by Section 80C.
Section 80CCD (1B)
An employee is eligible for an additional deduction of up to Rs. 50,000 on their contribution to the NPS account. This additional deduction is available over and above the limit of Rs. 1.5 lakh under Section 80C and Section 80CCD (1).
Section 80CCD (2)
An employee can claim a deduction for the employer’s contribution to their NPS account. The deduction amount is either 10% of the employee’s salary (basic plus dearness allowance) or 14% of the salary (if Central Government). There is no cap on the deduction amount.
Therefore, if an employee submits a declaration for NPS contributions, they can calculate the tax exemption as follows –
- Calculate the total amount of money an individual contributes to their NPS account in a single financial year.
- Claim a deduction of Rs 50000 under Section 80CCD (1B) from the total contribution.
- If the remaining amount is less than or equal to 10% of the salary or Rs. 1.5 lakh (whichever is lower), claim as a deduction under Section 80CCD (1).).
- If the amount exceeds 10% of salary or Rs. 1.5 lakh, claim only lower limit under Section 80CCD (1).
- To calculate the employer’s contribution to the NPS account for a financial year, add up the total amount contributed.
- Deduct under Section 80CCD(2) up to 10% of salary (basic + dearness) or 14% of contributions.
- Add up the deductions claimed under Section 80CCD(1), 80CCD(1B), and 80CCD(2) to get the total tax exemption under NPS.
For example –
An employee has a salary (basic plus dearness allowance) of Rs. 10 lakh in a financial year. They contribute Rs. 250,000 to the NPS account, and the employer contributes Rs. 100,000 to the NPS account. The tax exemption under NPS can be calculated as follows:
- Self-contribution is Rs. 250,000.
- Deduction under Section 80CCD (1B) is Rs. 50,000.
- Therefore, the remaining amount is Rs.200,000.
- Deduction under Section 80CCD (1) is Rs. 1,00,000, which is lower of Rs 200 000 and Rs 100,000 (10% of salary).
- The employer’s contribution is Rs. 100,000.
- Deduction under Section 80CCD (2) is Rs. 100,000 (10% of salary).
- The total tax exemption under NPS is Rs. 2,50,000, which is Rs. 1,00,000, Rs. 1,00,000, and Rs. 50,000.
Can a subscriber shift their PRAN from another sector to the corporate sector?
If you are already a subscriber with a PRAN and join a company under the corporate sector, you don’t need to apply for a new PRAN. Instead, to update the association of your existing PRAN with the new corporate, you need to submit either an ISS-1 form (for shifting from a different sector) or a CS-S3 form (for shifting from a different corporate) to your current employer.
Is it compulsory for the employer to make co-contributions?
NPS is a platform that allows companies to co-contribute with their subscribers or enable them to contribute towards their pensions.
This is the end of our discussion on NPS registration for employers. Let us know your other questions and opinions on this topic. Mention below the comment box.
Check out the related posts.