Corporate NPS: Types, Features, Eligibility

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Exploring Corporate NPS Benefits and Features, Including Tier 1 and Tier 2

Corporate NPS is a government-based scheme that private employers can use to create employee pension benefits. When your employer activates the corporate NPS scheme, you can plan your retirement efficiently and build a corpus for your golden years. The scheme offers numerous benefits to the employees, including better returns and tax benefits. Being a long-term investment option, corporate NPS benefits ensure a stable future for you and your family. Here is an overview of the scheme, benefits, and features.

What is the Corporate NPS Scheme?

Corporate NPS is an employee benefit scheme private and public sector companies can activate to provide pension benefits to their employees. It differs from individual NPS, which employees can subscribe to build a corpus for their retirement gradually. Some NPS features that distinguish both include returns, tax benefits, contributions, eligibility, lock-in period, etc.

Types of Corporate NPS Schemes

Primarily, there are two types of corporate NPS schemes:

Tier I: A Tier I account allows employees to invest independently or through their employer. It builds wealth till retirement and restricts premature withdrawal.
Tier II: Tier II is a voluntary account allowing employees to withdraw their NPS funds whenever required.

Benefits of Corporate NPS

Employees obtain numerous financial benefits of corporate NPS, including money-saving, tax benefits, corpus building, etc. It facilitates long-term retirement planning advantages with both Tier I and II accounts. These include the following:

Tax Benefits

Employer's Contribution: Employer's contribution applies to Tier I account only. Under 80 CCD (2), you get up to 10% of Basic plus Dearness Allowance, including superannuation, NPS, and PF.
Employee's Contribution: Under Sections 80 CCD (1) and (1B), employees can gain tax benefits of Rs 1.5 Lakh (up to 10% of the gross income) plus Rs 50,000 (additional deduction for NPS). Moreover, employers in the NPS corporate scheme qualify for Business Expense under section 36 (1) (IV).
Tax Treatment on Exit: 60% of the corpus withdrawn at retirement in a lump sum is tax exempted. The remaining amount invested in the annuity is also tax exempted. However, a pension received from an annuity investment is liable for appropriate taxation.

Building Goodwill

Activating corporate NPS offers employees several NPS Tier 1 benefits, building the employer’s goodwill among them and gaining their trust and loyalty.

Corpus

A pension corpus built through the employment years helps private and public employees lead a better, more confident life after retirement.

Cost-Effective Administration

Various NPS features make administration cost-effective for corporate NPS account holders, helping them provide better employee benefits and retain their loyalty.

Features of NPS Tier 2

Kotak NPS Tier II account is one of the most feature-rich options available with the following features:

Optional account to open for individual contributions only
100% freedom for equity selection
Option to choose different fund managers and investment options
No separate joining and CRA charges
No restrictions on minimum annual investment or number of contributions
100% withdrawals any time without tax benefits
Account opening with Rs 1000
Minimum amount per contribution is Rs 250

How Corporate NPS Works?

There are two types of NPS accounts – Tier I and Tier II. Tier II accounts are available for individual contributions only. Once opened, investors can choose between Active Choice and Auto Choice, with different levels of freedom to select their investment amounts and avenues. While Tier II account allows 100% withdrawal with no tax benefits, Tier I accounts have limitations on withdrawals. For instance, only 25% of the individual contribution is available for withdrawal after at least three years of constant contribution.

Eligibility Criteria for Corporate NPS

Any eligible business entity can enrol its employees under corporate NPS. A few essential documents for corporate NPS registration include the CHO-1 form, board resolution, POA, corporate PAN card copy, certificate of incorporation, and company profile sheet. Fill out an NPS registration application online or offline and sign a service legal agreement with your service provider.

Based on the employee's basic salary, the employee and the employer contribute equal amounts to the corporate NPS account. It benefits both parties significantly and builds trust among them.

Types of Accounts

Tier I: Tier I is a retirement account or Pension account.
Tier II: Tier I account holders can switch to Tier II accounts. It is an investment account meant for individual contributions only.

Investment Options for Corporate NPS

Corporate NPS provides two investment options:

Subscriber Level: Under this option, the investment option including the Pension Fund Manager (PFM) is available at the discretion of the Subscriber.
Corporate Level: Under this option, the Pension Fund Manager (PFM) and the scheme preference is selected by the Corporate. All the employee joining under the corporate scheme, will continue to remain the same until 365 days are completed. Post completed 365 days from the day of association under corporate scheme, the option will move to Subscriber level.

Withdrawal Rules and Regulations

Before Retirement: 20% lump sum and 80% pension corpus after at least five years of constant participation.
After Retirement: 60% lump sum and 40% pension corpus at 60 years or Retirement date.

Corporate NPS for Employers

Offering corporate NPS as an employee benefit has multiple advantages:

Income security for employees after retirement
Contribute towards their pension
Unlimited employer deduction
Savings on pension function self-administration expenses

Conclusion

Companies must consider applying for a corporate NPS account to benefit their employees and gain corporate NPS benefits. Apply for registration now at Kotak and gain an edge over competitors towards employee benefits.

Frequently Asked Questions

1.) How does Corporate NPS differ from individual NPS accounts?

As the name suggests, individual NPS accounts are for individual employees only, while corporate NPS accounts are for corporate entities willing to benefit their employees.

2.) Are there any tax implications for employees contributing to Corporate NPS?

Employees contributing to corporate NPS are eligible for a tax deduction of up to Rs 1.5 Lakh plus Rs 50,000 for NPS deduction under sections 80 CCD (1) and (1B).

3.) Can employees switch between NPS Tier 1 and Tier 2?

Yes, one way switch is possible. Transferring NPS corpus from Tier 2 to Tier 1 is allowed at any point of time.

4.) What happens to the NPS account if an employee changes jobs?

If it is an individual NPS account, the employee can retain the account if they change the job. On the other hand, a corporate NPS account is linked with the company, and they need special formalities to transfer it.