Retirement Planning is very necessary these days. You need to plan your retirement properly so that you don’t face financial difficulty after retirement. Being a corporate employee, you might be looking for various options for retirement planning.
There is one such scheme that can help you get the best returns and generate regular income after retirement. It is Corporate NPS. Here not just you but your employer also contributes in the scheme. Let us understand more about corporate NPS and how it benefits employees as well as employers.
What is Corporate NPS?
Corporate NPS is an initiative started by the government of India in December 20111. Corporate NPS allows you to contribute a part of your salary towards retirement planning. Your employer also gives contributions to your NPS account.
This contribution is then invested in bonds, stocks and various other securities. This scheme helps the employee to build a retirement corpus and earn regular income post-retirement.
Corporate NPS is regulated by The Pension Regulatory and Development Authority (PFRDA). All corporate employees can invest in the scheme. You can use the NPS calculator to calculate gains by investing in the NPS scheme.
Types of Accounts under Corporate NPS
There are two types of accounts that can opened under the NPS scheme. The explanation of both is as under: –
- Tier I Account
It is one type of retirement savings account. Contribution to this account can be made by employee, employer or both. You can’t withdraw the funds from this account until retirement.
- Tier II Account
It is a voluntary savings account. Employees can withdraw from this account whenever the need arises. However, they need to maintain the minimum contribution and minimum balance requirements.
Eligibility Criteria for Corporate NPS
Following are the eligibility criteria for investing in Corporate NPS
- Available to all Indian citizens.
- An employee’s age shall be between 18-65 years.
- All employees who are working in organisations registered under the NPS Corporate Model can apply.
There are certain types of entities that can join the NPS Corporate Model. These entities are as under: –
- Those entities which are registered with the Companies Act.
- Those entities which are registered with the Co-operative Act.
- Central and State Public Sector Enterprises
- Registered Partnership Firms
- Limited Liability Partnership (LLPs) firms
- Those entities that are incorporated by the Parliament Legislature or State Legislature.
- Those entities are incorporated through the order initiated by the State Government or Central Government.
- Societies/Trusts/Proprietorship Concerns
Registration for Corporate NPS
Here are some steps that companies need to follow to register for Corporate NPS: –
- First of all, the company need to register itself with PFRDA for which it needs to fill out the necessary form and submit KYC documents. On completion of this, a distinct registration number is allotted to the company.
- Employees can open an account with corporate NPS online. After the employee has completed the registration, the HR of the company will help them to activate PRAN.
- The corporation takes the consent from employees and then deducts the contribution from the employee’s salary. The corporation can send this amount to the relevant insurer for processing.
Benefits of Corporate NPS
For Employees: –
Some of the key benefits of Corporate NPS for employees are as follows: –
- Regulated by PFRDA
Corporate NPS is regulated by PFRDA. The investment norms are very transparent and the funds are monitored on a regular basis by Fund managers appointed by NPS Trust.
- Retirement Planning
Corporate NPS helps employees to create a corpus fund for retirement. It also assures regular income after retirement.
- Offers Portability
The scheme offers a portability option. Whether you change your job or change city, your NPS account number remains the same and can be transferred
- Offers flexibility
It offers flexibility in the selection of fund managers, investment options, annuity service providers and annuity schemes.
- Tax-Saving Instrument
Corporate NPS offers you tax benefits. You are eligible for tax exemption as well as tax deduction.
- Low cost
Corporate NPS has the lowest expense ratio for managed funds.
- Market-Linked Returns
You are given the choice to invest your corporate NPS funds in 4 different types of market-linked investment. They are corporate debt, government securities, equity and alternative assets. NPS calculator can be used to calculate estimated returns from your investments in NPS.
- Digital Process
The account opening process is online and can be completed in a few minutes. Even the contribution can also be done online.
Some of the key benefits of Corporate NPS for employers are as follows: –
- Tax benefit
The entities that are registered under the NPS corporate model are eligible to get tax benefits. This is due to the contribution they make towards employee’s NPS accounts.
- Business Expense
From 1st April 2012 onwards 10% of the employer’s contribution to the NPS account can be deducted by the employer as “Business Expenses”.
If the company has to allocate funds for the pension of an employee, then they have to incur a lot of expenses like trust formation, fund management and recordkeeping. By contributing to employee’s pensions through Corporate NPS, they are saved from these expenses.
Companies have an option to select the Pension fund for their employees. Or else they can also allow them to choose the pension fund on their own.
- Provides Platform
NPS provides a platform to employers through which they are able to contribute to employee’s pension funds.
Tax Benefit of Corporate NPS
Employees can invest in NPS accounts up to ₹50000. This investment is allowed for tax deduction under section 80CCD (1B) of the IT ACT, 1961.
NPS returns are tax-free and the corpus fund which is withdrawn at the age of 60 is also tax-free.
The employer’s contribution towards NPS is considered a business expense under section 36 (1) iv (a) of IT ACT, 1961. The limit for this is up to 10% of Basic Salary + DA.
Corporate NPS helps you to secure your retirement. Here not only an employee but the employer also contributes to the scheme. It is very low cost and offers flexibility. It also helps in saving tax. If you are planning to invest in NPS, you can use the NPS calculator to estimate your gains through investment.