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Corporate NPS: A Guide for Employers and HR Teams

Corporate NPS: A Guide for Employers and HR Teams

Summary: Corporate NPS allows eligible organisations to offer the National Pension System to their employees as part of their retirement benefits structure. It enables employers and employees to contribute towards an NPS account, subject to the applicable rules. This guide explains Corporate NPS, its tax treatment for employers and employees, eligibility requirements, setup process and account portability.

Corporate NPS is a framework through which eligible organisations can offer the National Pension System (NPS) to their employees. It allows employers to incorporate NPS into their retirement benefit structure while giving employees access to an individual, portable pension account.

The Corporate Sector Model provides flexibility in how contributions are structured and who makes them. This guide explains what Corporate NPS is, the tax treatment of employer and employee contributions, eligibility, the setup process and what happens to an NPS account when an employee changes jobs.

What Is Corporate NPS?

Corporate NPS is a model that allows eligible organisations to provide NPS to their employees as part of their retirement benefits. Companies registered under the Companies Act, partnerships, LLPs, government entities, public sector enterprises, trusts, societies and several other eligible organisations can adopt the Corporate Sector Model, subject to the applicable requirements.

An organisation can register under the Corporate Sector Model through a registered Point of Presence (PoP). Employees of the participating organisation can then enrol in NPS and receive their own Permanent Retirement Account Number (PRAN).

Unlike a company-managed pension arrangement, the NPS account belongs to the individual employee. The account can therefore continue when the employee changes jobs, subject to the applicable NPS rules.

Tax Benefits for Employers

An employer’s contribution to an employee’s NPS account can qualify as a business expense deduction under Section 36(1)(iva) of the Income Tax Act, subject to the applicable conditions and limits.

The limit for the employer’s deduction was increased from 10% to 14% of the employee’s salary under the Finance Act, 2024. The change applies from Assessment Year 2025-26 onwards. PFRDA’s current Corporate NPS information also states that employer contributions of up to 14% of salary (defined as Basic plus Dearness Allowance) can be claimed as a business expense.

Corporate NPS can also reduce the need for an organisation to independently manage certain pension administration functions. Under the NPS framework, activities such as recordkeeping and investment-related administration are handled through regulated intermediaries.

The actual contribution structure and administrative arrangements depend on the employer’s policy and the service arrangements with the relevant PoP.

Also Read – NPS vs PPF vs Mutual Funds 

Tax Benefits for Employees Under Corporate NPS

Employees can receive tax benefits on eligible NPS contributions under Sections 80CCD(1), 80CCD(1B) and 80CCD(2). The availability of these deductions depends on the type of contribution and the tax regime selected.

1. Section 80CCD(1): Employee’s Own Contribution

An employee’s own contribution to NPS can qualify for a deduction under Section 80CCD(1), subject to the applicable conditions and limits.

For salaried employees, the deduction is generally limited to 10% of salary, comprising Basic Salary and Dearness Allowance where applicable. The deduction falls within the overall ₹1.5 lakh limit under Section 80CCE.

This deduction is available under the old tax regime. It is not available under the new tax regime.

2. Section 80CCD(1B): Additional NPS Deduction

Section 80CCD(1B) provides an additional deduction of up to ₹50,000 for eligible NPS contributions.

This is over and above the ₹1.5 lakh limit applicable to deductions under Section 80CCE. The additional ₹50,000 deduction is available under the old tax regime and is not available under the new tax regime.

3. Section 80CCD(2): Employer’s Contribution

Section 80CCD(2) applies to an employer’s contribution to an employee’s NPS account.

For employees taxed under the new tax regime, the deduction is available up to 14% of salary for all categories of employers for AY 2026-27.

Under the old tax regime, the applicable limit is 10% of salary where the employer is a PSU or another employer, and 14% where the employer is the Central or State Government.

Unlike an employee’s own NPS contribution under Sections 80CCD(1) and 80CCD(1B), the deduction under Section 80CCD(2) relates specifically to the employer’s contribution.

Why Section 80CCD(2) Makes Corporate NPS Relevant for HR Teams

Section 80CCD(2) is particularly relevant when an organisation is designing its salary and retirement benefits structure because it concerns an employer contribution rather than an employee’s own investment.

For employees using the new tax regime, the Income Tax Department specifically provides for a deduction for eligible employer contributions to NPS. For AY 2026-27, the limit is 14% of salary for all categories of employers.

This means employers can structure NPS contributions separately from an employee’s personal deductions under Section 80C. However, the actual tax benefit depends on the employee’s salary structure, contribution amount, tax regime and other applicable provisions.

HR and payroll teams should therefore distinguish between the employer’s contribution and the employee’s own contribution when communicating NPS-related tax benefits.

Also Read – Thumb rule of investment 

Eligibility Criteria for Corporate NPS

Both the organisation and the employee must meet the applicable NPS requirements.

Eligible organisations

PFRDA’s current Corporate NPS framework allows several types of organisations to adopt NPS, including:

  • Companies registered under the Companies Act, 2013
  • Co-operative societies
  • Government bodies and entities established under legislation
  • Public Sector Enterprises and Government companies
  • Registered partnership firms
  • Limited Liability Partnerships
  • Proprietary concerns
  • Trusts and societies
  • Certain foreign companies and international organisations operating in India

The organisation must complete the required registration under the Corporate Sector Model.

Eligible employees

Employees of an organisation that has adopted Corporate NPS can enrol if they meet the applicable requirements. PFRDA currently states that eligible employees include Indian citizens, NRIs and Overseas Citizens of India, subject to KYC requirements.

The current age range for eligible employees under the Corporate Sector Model is 18 to 85 years.

An employee can have only one NPS account.

How to Set Up Corporate NPS: Step-by-Step for Employers

An organisation can generally follow these steps to implement Corporate NPS:

  1. Select a Point of Presence: Choose a registered PoP to facilitate the organisation’s registration and NPS-related services.
  2. Complete Corporate Registration: Submit the required organisation-level documents and complete registration under the NPS Corporate Sector Model. PFRDA states that corporate registration can be completed through a registered PoP.
  3. Decide the Contribution Structure: The employer can determine whether contributions will be made by the employer, employee or both, in accordance with its compensation and retirement-benefit policy. PFRDA confirms that equal, unequal, employer-only and employee-only contribution structures are possible.
  4. Onboard Employees: Eligible employees complete the required KYC process and obtain their individual PRAN.
  5. Integrate with Payroll: Where applicable, employer contributions and employee deductions can be incorporated into the organisation’s payroll process.
  6. Manage Ongoing Participation: Employees can access their NPS accounts and, depending on the arrangement, make choices relating to pension funds and investment options. PFRDA also provides for employee choice in certain Corporate NPS investment arrangements.

The exact documentation, process and charges can depend on the organisation’s selected PoP and applicable NPS procedures.

Also Read – Thumb rule of investment

Employee Portability and Exit

NPS accounts are portable across jobs. An employee’s PRAN remains associated with the individual rather than with a particular employer.

When an employee changes jobs, the existing NPS account can continue. Where the new employer offers Corporate NPS, the employee can use the existing account within the new employer’s arrangement, subject to the applicable process. The employee can also continue the NPS account independently where permitted.

The treatment of withdrawals and exit depends on the circumstances and the applicable NPS exit and withdrawal regulations. PFRDA also states that NPS accounts remain portable across jobs and geographical locations.

Conclusion

Corporate NPS provides an established framework through which eligible organisations can include NPS within their employee retirement benefits. It allows employers to choose an appropriate contribution structure while employees receive an individual and portable NPS account.

The tax treatment differs according to the type of contribution and the employee’s tax regime. In particular, Section 80CCD(2) provides a deduction for eligible employer contributions with the current limit under the new tax regime being 14% of salary for all employer categories for AY 2026-27.

Organisations should verify the applicable NPS and tax provisions before implementing or communicating the benefit, particularly because contribution limits, tax provisions and regulatory requirements can change.

Disclaimer: This article is intended for general informational and educational purposes only and does not constitute tax, legal, financial or investment advice. Tax treatment and NPS rules are subject to applicable laws, regulations and amendments. Employers and employees should verify the provisions applicable to their circumstances with a qualified professional or through the official websites of PFRDA and the Income Tax Department.

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FAQs

What is Corporate NPS?

Corporate NPS is a framework that allows eligible organisations to offer the National Pension System to their employees. Employees can enrol through the organisation, open an individual NPS account and receive a PRAN. The account remains portable when the employee changes jobs, subject to applicable NPS rules.

Which companies are eligible to offer Corporate NPS?

Several types of organisations can adopt the Corporate Sector Model, including companies, LLPs, registered partnership firms, public sector enterprises, government entities, trusts, societies and certain other eligible entities. The organisation must complete the applicable registration process under the Corporate Sector Model.

What tax benefits does the employer get from Corporate NPS?

Eligible employer contributions to NPS can be claimed as a business expense deduction under Section 36(1)(iva), subject to the applicable conditions and limits. The current employer deduction limit is up to 14% of salary.

What tax benefits do employees get under Corporate NPS?

Employees may receive tax benefits on their own NPS contributions under Sections 80CCD(1) and 80CCD(1B), where applicable, and on eligible employer contributions under Section 80CCD(2). The availability and limits depend on the contribution type and tax regime.

Is Section 80CCD(2) available under the new tax regime?

Yes. For AY 2026-27, the Income Tax Department states that eligible employer contributions under Section 80CCD(2) can be deducted up to 14% of salary for all categories of employers under the new tax regime.

What happens to Corporate NPS if an employee changes jobs?

The employee's NPS account and PRAN are portable. When the employee changes jobs, the existing account can continue and may be linked to a new employer's Corporate NPS arrangement if the new employer offers the scheme.

How does a company set up Corporate NPS?

A company can select a registered Point of Presence, complete corporate registration under the NPS Corporate Sector Model, decide its contribution structure and facilitate employee onboarding. The organisation can then integrate applicable contributions with payroll and support employees with ongoing account administration.    
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