BAJAJ BROKING
April 02, 2025
9 mins read
Corporate NPS is an organised retirement saving plan that allows employees to construct long-term economic security. It is available with registered organizations under the National Pension System (NPS), it is made through regular employee and employer contributions. Over a period of time, these contributions form a retirement corpus, which helps the employees during their golden years.
There are two kinds of accounts under Corporate NPS. The Nps Tier I account is the primary pension account for long-term savings. It has withdrawal limitations and is aimed at enabling employees to create a secure retirement corpus. The contribution can be made by the employee or by the employer. The Tier II account is voluntary and has greater flexibility, with the ability to withdraw money at any time. While Tier I is for retirement planning, Tier II can be utilised for short-term expenses.
What distinguishes Corporate NPS is its blend of structure and flexibility. Governed by the Pension Fund Regulatory and Development Authority (PFRDA), it provides transparency and security. For employers, it is a good employee welfare tool with tax benefits. For employees, it's an easy method to increase their savings with investment choice control over personal goals and risk tolerance.
Corporate NPS is a voluntary pension plan where contributions come from the employee and the employer on a regular basis. Such contributions are made in varying asset classes such as equity, corporate bonds, and government securities and go into the formation of a diversified corpus over time.
A Permanent Retirement Account Number (PRAN) is allocated to each employee that remains constant despite change in job, providing continuity in accessing his or her pension account.
The plan works with two kinds of accounts. Tier I is the primary retirement account that has restricted withdrawal facilities. Withdrawals are permitted only after three years and under exceptional reasons like education, medical, or house buying, up to 25% of employee contributions. Tier II is voluntary, more liberal, and permits withdrawals at any time but without tax advantages.
Employees can choose how their money is invested, either by determining their asset allocation themselves (active choice) or by allowing the system to do it automatically according to age (auto choice).
On retirement, employees can take up to 60% of their savings as a cash sum, with the other 40% being used to purchase an annuity. In return, with this annuity plan, you get a fixed amount of money at regular intervals. It could be monthly, quarterly, or yearly, just like a pension, providing steady income in retirement.
Corporate NPS offers a host of benefits that support both employees and employers. It’s not just about building a retirement fund, it also promotes better financial habits, encourages long-term planning, and brings real value to workplace benefits.
For Employees
Tax Savings: Employees can reduce their tax burden with deductions under Section 80C (up to ₹1.5 lakh) and an additional ₹50,000 under Section 80CCD(1B).
Retirement Planning: Regular contributions help employees save consistently and build a strong financial base for their post-retirement years.
Market-Linked Growth: Funds are invested across equity, bonds, and government securities, offering the potential for better returns over time.
Flexibility: Employees have the freedom to choose how their money is invested and can switch fund managers or plans if needed.
Portability: The same PRAN account continues and stays active even if the employee changes jobs or moves to a new location.
Annuity Income: At retirement, a part of the savings can be withdrawn, and the rest is converted into regular pension income through an annuity.
For Employers
Tax Benefits: Employers enjoy tax relief on their contributions under Section 80CCD(2), and can also claim it as a business expense under Section 36(1)(iv).
Employer Contribution: Companies can contribute up to 10% of the employee’s Basic salary plus DA, giving employees a valuable financial advantage.
Better Retention: Offering Corporate NPS as part of the benefits package can improve employee satisfaction and boost long-term retention.
Cost-Effective Option: It’s a structured way to offer meaningful financial benefits without a high cost to the organisation.
Safe and Regulated: Managed under the guidelines of PFRDA, the scheme ensures transparency, compliance, and peace of mind for employers.
Together, these benefits make Corporate NPS a thoughtful and practical way to support financial well-being at work, benefitting both sides in the long run.
Corporate NPS provides a structured model that is both employer-friendly and employee-centric, hence an easy and sensible retirement savings option. These are the main features that capture the structure of how the scheme operates and why it's increasingly becoming more popular:
Employer Participation: Registered employers enrol under Corporate NPS and contribute to the account of their employees in the benefit plan.
Two-Tier Structure of the Account: The employee gets a Tier I account, which is compulsory and mainly for retirement savings. A voluntary Tier II account is also provided, which has more liquidity for personal savings.
Investment Choice: The option to choose either active choice, where the asset allocation is done by the employees, or auto choice, in which the investment mix is managed according to age.
Partial Withdrawals: Based on defined criteria like education, medical expenses, or buying a house, the employees can partially withdraw from the corpus built up.
Exit Options: Employees can withdraw a part of their savings as a lump sum when they retire and utilise the remaining amount to purchase an annuity for periodic income.
Lock-in Period: Tier I contributions stay locked in until retirement, helping employees build long-term savings. However, after three years, they can withdraw up to 25% of their own contributions for certain needs like education, medical treatment, or buying a house.
Low-Cost Pension Scheme: Corporate NPS has less fund management fee than most traditional investment products, hence it is an economical alternative.
Customised Contribution Plans: The employees are free to choose the amount they want to contribute, thus exercising control over the amount they can save depending on their financial priorities.
Dedicated PRAN: Each employee receives a distinctive Permanent Retirement Account Number (PRAN) that facilitates tracking and managing the account effectively.
Online Management: Corporate NPS accounts can be viewed and handled online, so it is easy to look at balances, modify preferences, or correct information.
These aspects render Corporate NPS an employee-oriented and balanced retirement solution with structure and flexibility in creating long-term financial stability.
Corporate NPS is easy to access and designed to include a wide range of working professionals. Here’s the eligibility criteria for who can enrol:
Employers: Any registered private, public, or multinational company can offer Corporate NPS to its employees.
Employees: Any salaried individual working in a registered organisation is eligible to join the scheme.
Age Limit: Employees between 18 and 60 years of age can enrol at the time of joining.
KYC Requirements: Basic documents like Aadhaar, PAN, and valid ID proof are needed to get started.
Employer Registration: The organisation must be registered with PFRDA to offer Corporate NPS.
Pre-existing Accounts: If an employee already has an NPS account, they can continue using the same one with a new employer.
These simple criteria make it easy for both employers and employees to be part of the Corporate NPS journey.
The Corporate NPS enrolment process is easy to follow, with clear steps for both employers and employees to get started smoothly.
Step | Process |
Step 1 | The employer registers with the Pension Fund Regulatory and Development Authority (PFRDA) under Corporate NPS. |
Step 2 | Interested employees share their consent and submit required documents such as Aadhaar, PAN, and other KYC details. |
Step 3 | The employer initiates account creation for each employee through the Central Recordkeeping Agency (CRA). |
Step 4 | Each employee receives a unique Permanent Retirement Account Number (PRAN), which is used to manage and track the pension account. |
Step 5 | The employer and employee decide on the contribution amount based on company policy and mutual agreement. |
Step 6 | Monthly contributions are deducted from the employee’s salary and invested in selected NPS funds. |
Step 7 | Employees can monitor their accounts, review fund performance, and make changes to investment options or fund managers if needed. |
Step 8 | At the time of retirement, the employee can easily withdraw a part of their savings as a lump sum. The remaining amount can be used to purchase an annuity for regular income. |
This step-by-step process makes it easy for organisations to roll out Corporate NPS and just as smooth for employees to get started and plan their financial future.
Corporate NPS offers tax benefits to employers and employees alike, making it a tax-effective retirement savings instrument.
For Employees: The contributions employees make towards their Tier I NPS account are eligible for tax deductions under Section 80CCD(1). Employees can claim a deduction of up to 10% of their salary (Basic + Dearness Allowance), subject to the overall limit of ₹1.5 lakh under Section 80C. This allows salaried individuals to lower their taxable income while steadily building a retirement corpus.
Additional Deduction: Employees can also claim tax benefits of up to ₹50,000 under Section 80CCD(1B) apart from the standard deduction. This extra deduction is available exclusively for NPS contributions and is over and above the limit of ₹1.5 lakh under Section 80C. It offers more room for tax savings for those who have already exhausted their primary tax-saving options.
For Employers: Employers also enjoy tax benefits on the contributions they make to their employees’ NPS Tier I accounts. These contributions, up to 10% of an employee’s salary (Basic + DA), are eligible for deduction under Section 80CCD(2). Moreover, these contributions are treated as business expenses and can be claimed as deductions under Section 36(1)(iv)(a), which helps lower the company’s overall tax liability.
Tax Treatment on Withdrawal: When they retire, employees can withdraw up to 60% of their total NPS corpus as a lump sum, which is completely tax-free. The remaining 40% must be used to purchase an annuity plan, which will provide a regular source of income. The amount used to buy the annuity is tax-free, although the pension income received from the annuity is taxed according to the applicable income slab.
No GST on Contributions: Another added advantage is that NPS contributions are not subject to Goods and Services Tax (GST). This makes Corporate NPS a more cost-effective savings option when compared to many other investment products.
With these benefits, Corporate NPS offers a strong combination of disciplined saving and effective tax planning. It not only supports retirement goals but also adds meaningful value to both employees and employers through tax-efficient financial management.
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Disclaimer: Investments in the securities market are subject to market risk, read all related documents carefully before investing.
This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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Corporate NPS is a retirement savings scheme that employers offer to their employees under the National Pension System. Both employer and employee contribute regularly to the account, helping the employee build a retirement fund while also enjoying tax benefits.
Corporate NPS supports long-term savings for employees through regular contributions and market-linked growth. For employers, it adds value to their employee welfare offering, improves retention, and comes with tax advantages making it beneficial for both sides.
Employees get tax benefits under Section 80CCD(1) and an extra deduction under Section 80CCD(1B). Employers can claim deductions under Section 80CCD(2) and Section 36(1)(iv). At retirement, 60% of the savings is tax-free, while the rest goes into an annuity. Pension received from the annuity is taxed as per income slab.
Organisations need to register with the Pension Fund Regulatory and Development Authority (PFRDA). Once registered, they can open NPS accounts for employees through the Central Recordkeeping Agency (CRA). The process is simple and requires basic documentation and employee consent.
Yes, Corporate NPS is voluntary. While employers may include it in their benefits package, employees can choose not to participate, based on the company’s internal policy and contribution setup.
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Investments in the securities market are subject to market risk, read all related documents carefully before investing. This content is for educational purposes only. Securities quoted are exemplary and not recommendatory.
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