Corporate NPS tax benefits have made NPS an increasingly popular choice for companies as well as their employees. Whether you are a salaried individual, a corporate executive or a government employee, you can enjoy the vast benefits of corporate NPS and secure your future financially. But what tax-related NPS advantages does corporate NPS offer? Let us break it down.
Corporate NPS tax benefits on self contribution
- Section 80 CCD (1): According to this section, if an individual employed by a company pays or deposits any amount in their Tier 1 NPS account, they can claim a tax deduction of up to 10% of their salary (including basic salary and DA), within a limit of ₹1.5 lakh specified under Section 80 CCE.
- Section 80 CCD (1B): According to this section, if an individual employed by a company voluntarily adds an additional amount of ₹50,000 (or more) to their Tier 1 NPS account, they can claim an extra tax deduction of up to ₹50,000 over and above the overall limit of ₹1.5 lakh.
Corporate NPS tax exemption for employer contribution
Employer contribution tax benefit for a corporate model of NPS
1. Benefit for the employee: According to Section 80 CCD (2), if an employer makes contributions to an employee’s NPS account, then the employee can claim a tax deduction of up to 10% of his salary (basic+DA) over the limit of ₹1.5 lakh specified under Section 80 CCE.
2. Benefit for the employer: According to Section 36 (1)(iv)(a), if an employer makes contributions to an employee’s NPS account, then the employer can claim a tax deduction of up to 10% of the employee’s salary (basic+DA) and mention that as a ‘Business Expense’.
Note: As per the latest budget, the tax deductions for employers’ contributions have been raised from 10% to 14% of their salary (basic+DA) for all types of employees under the new tax regime.
Employer contribution tax benefit under Government NPS
Employer’s contributions to Tier 1 NPS accounts, in case of government NPS, are eligible for a tax deduction of 14% of his salary (basic+DA), over the limit of ₹1.5 lakh specified under Section 80 CCE.
This increased deduction provides additional employee benefits to government workers, allowing them to claim substantial tax benefits.
Corporate NPS tax benefits of investing in Tier 2 Account
While investing in a Tier 2 NPS account offers added flexibility and a way to increase your retirement savings, it is important to note that this type of NPS account does not offer tax savings.
In contrast to Tier 1 NPS accounts, contributions made in Tier 2 accounts are not eligible for any NPS deductions.
Plus, the withdrawals made from Tier 2 accounts are subject to taxation, which means that the gains in your Tier 2 account will be included in your taxable income.
Conclusion
Corporate NPS is an attractive option for utilising the tax exemptions provided by the Income Tax Act.
With a range of benefits, including steady returns and tax deductions on self and employer contributions as well as greater corporate benefits for government employees, corporate NPS is a perfect tool to minimise your tax liabilities and grow your retirement savings.
So, open an NPS account with Axis Bank today and start building a stronger tomorrow.
Also Read: Know the difference between Tier 1 and Tier 2 in NPS
FAQs
What is the advantage of corporate NPS?
Corporate NPS offers numerous benefits, such as considerable corporate deductions for employers and employees, flexibility in investment options, portability and enhanced retirement savings.
Is corporate NPS exempted in the new tax regime?
Only employer contributions to employee NPS accounts are eligible for tax exemption in the new tax regime.
Can I claim both 80CCD 1B and 80CCD 2?
Yes, you can claim tax deductions under Section 80CCD (1B) and 80CCD 2 at the same time. However, while doing so, you have to ensure that the deductions do not exceed the specified limits for each section.
What happens to corporate NPS if I resign?
You can use the “Premature exit” facility to withdraw your accumulated corpus, subject to the scheme’s terms and conditions.
Can I convert individual NPS to corporate NPS?
Yes. To convert individual NPS to corporate NPS, you will have to submit the Form-ISS-1 to your PoP service provider.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
