NPS Corporate Model: How It Works, Tax Benefits, and Exit Rules Explained

The National Pension System is a government-initiated scheme to help individuals save for their retirement days. Under the corporate NPS, both you and your employer can regularly contribute to your NPS account during your working years.

The amount you receive at retirement is not fixed as it depends on some factors, including how much you and your employer have contributed, the duration and how well your investment performs. If you invest for a longer period, you will receive a larger retirement corpus with low-charge deductions.

What is PRAN?

Every member of NPS receives a unique 12-digit number, called Permanent Retirement Account Number (PRAN), that identifies the employee as an NPS subscriber across India. Even if you leave your job, you can still move the NPS contribution amount to a new employer using the same PRAN A/c. If an employee leaves the company before 5 years, the money the employer contributed to their NPS account still belongs to the employee. It can’t be taken back by the company.

What is the NPS Corporate Model?

As per the PFRDA website, the NPS Corporate Model allows companies to help their employees save for retirement without managing their pension fund. It’s open to all kinds of companies, including companies, public sector enterprises, partnerships, LLPs, co-operative societies, trusts, proprietorships, and other government-incorporated bodies.

Advantages of the NPS Corporate Model

Portability across jobs and locations

One of the key benefits of NPS is that it stays with you no matter how many jobs or locations you change. Plus, the Tier II account allows for extra savings with flexible withdrawals, though it doesn’t come with tax benefits.

Nationwide access

You can manage your NPS account from anywhere in the country, whether you’re in a big city or a remote area.

Transfers between POPs and POP-SPs

You can move your NPS account between the Corporate/subscribers and the NPS architecture and POP Service Providers (POP-SPs), which are the branches of registered POPs, to extend the reach of NPS. Therefore, you can switch or shift between different service providers without any issues.

Easy job transitions

When changing jobs, you can easily transfer your NPS account, whether you switch between private companies, government jobs, or different NPS models.

Dual Tax Benefits

NPS offers dual tax benefits for both employees and employers. Under the old tax regime, employees can claim deductions up to Rs. 1.5 lakh under Section 80CCD(1) and an additional Rs. 50,000 under Section 80CCD(1B). Furthermore, the employer’s contribution up to 10% of the salary is tax-free for the employee under Section 80CCD(2). In the new tax regime, the employer’s contribution can go up to 14% of the salary and remains tax-free for the employee.

Universal contributions

You can make NPS contributions through any registered provider, even if you’re not directly registered with them.

For self-employed

Even if you leave a job to become self-employed, you can still contribute to your NPS. If you return to work, both you and your new employer can continue contributing.

Flexible investment choices

Employees have the choice to select from different fund managers and investment options like equity, corporate bonds, and government securities. You can actively handle your portfolio or choose the Auto Choice option, which adjusts investments based on your age.

Minimum Contribution to Tier-I and Tier-II Accounts

What are the rules for NPS exit and Withdrawal?

If you need money before retirement, partial withdrawals are allowed for emergencies like medical or education needs. If you want to exit the NPS before the age of 60, you can do it, but there are strict rules for that. You can only withdraw 20% as a lump sum, and 80% needs to be annuitized.

If you withdraw the money at retirement (age 60), you can withdraw 60% of the corpus, and this amount will be tax-free. The remaining 40% must be used to buy an annuity.