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Under the corporate model of NPS, an employer can add their own contribution to an employee's pension fund.
NPS allows three types of contribution mix between the employee and the employer.

Employer can make a contribution equal to the employee's contribution

Employer can make a contribution, which is higher or lower to the employee's contribution

Between the employer or employee, only one of them makes a contribution

Investors in NPS need to choose an investment mix for their portfolio, which is distributed across equity,
government bonds, etc. Corporates can choose a common investment mix for their entire organization, or give
employees the option to set their own investment mix.
For a Tier I account of NPS, you need to contribute a minimum of 6,000 in a year. The minimum contribution
for an individual is the same, irrespective of whether you are investing on your own or through your employer's
corporate account.
Tax benefits to employees
Under section 80 CCD (I) of the income tax act, individual NPS contributions of up to 10 per cent of the salary
are exempted from tax. This exemption is subject to an upper limit of 100,000.
When you contribute to NPS through your employer's corporate account, you can get additional tax deductions
on NPS contributions made by your employer. Employer's NPS contributions of up to 10 per cent of the
employee's salary are also exempted from tax; this exemption is in addition to the tax benefit on the employee's
NPS contribution. This benefit is under section 80 CCD (II) of the income tax act.
Example : Suppose you earn an annual salary of 12,00,000. You contribute 70,000 in a year to NPS through
your employer's corporate NPS account. You can get a tax benefit on this amount, and your taxable income will
be reduced to 11,30,000 (12,00,000 - 70,000). Suppose in addition to your contribution, your employer
makes a contribution of 70,000 to your NPS account. As per section 80 CCD (II), you can get a tax benefit on
the additional amount as well. So, in total 140,000 will be deducted from your taxable income.
How to maximize the tax benefit available under NPS?
As you can see, if you invest in NPS through a corporate account, you can get a higher tax benefit than what is
possible as an individual. If you want to increase your tax savings, it may be a good idea to request your
employer to open a corporate NPS account.
If your employer doesn't want to take the burden of the additional cost, you can request to revise your pay
structure. Under the revised pay structure, you can ask them to contribute a portion of your take-home pay to
your NPS account. \

Tier I account is meant for retirement savings, and it does not allow any withdrawals until retirement.

Tier II account is similar to a regular savings account with an option to withdraw money anytime.
At the time of opening an account, it is compulsory to choose any one of the 8 fund managers appointed by
Government to manage NPS funds. All funds have given different returns, and you can choose the fund based
on their 1-year and 3-year performance.
Where is the money invested?
The money deposited in an NPS account is invested in a combination of equity, government bonds, corporate
bonds, fixed deposits, etc.
As an investor, you have two options for managing your NPS contribution.

Active Choice: If you opt for an active choice, you will have to specify the percentage for distributing
your investment among equity, government securities and fixed income instruments. Note you cannot invest
more than 50 per cent in equity.

Auto Choice: If you opt for an auto choice, the money is invested as per Government's pre-decided
formula, which varies by age.
Swavalamban Scheme
For citizens who are not a part of any other pension or provident fund scheme, the government has launched a
'Swavalamban Scheme' as part of NPS. Under this scheme, the government contributes an additional 1,000
every year for every NPS contributor who invests between 1,000 and 12,000 every year.
Example 1: You are a self-employed professional who does not have access to pension schemes like employees'
provident fund scheme. If you open an account with NPS and contribute 6,000 every year, the government will
add an extra 1,000 to your contribution, increasing your contribution to 7,000.

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Withdrawal from NPS

When you withdraw your money from NPS, you can get only a certain amount as a lump sum. The rest of the
amount has to be compulsorily invested with one of the seven annuity service providers, who will provide you a
monthly annuity or pension in return.
Withdrawal before 60: You can take 20 per cent as cash, and you have to invest the remaining 80 percent in
any one of the annuity schemes.
Withdrawal after 60: You can withdraw up to 60 percent, and you have to purchase an annuity with the
remaining 40 percent.

Withdrawal upon death: If the account holder dies, the entire amount can be withdrawn by the nominee
without investing in annuity schemes.
NPS for salaried employees
Salaried employees can either open an NPS account on their own or invest through their organization's corporate
NPS account (if it has one).
Tax treatment:
Whether you are salaried or self-employed, any NPS contribution of up to 10 per cent of annual income can be
deducted from taxable income. The maximum limit for tax deduction under NPS is 100,000. Note the tax
benefit is available only on Tier I account, and not on Tier II account. Any withdrawals from NPS are fully
taxable.
Example 2: Your annual salary is 15,00,000, and you invest 10 per cent of your salary in NPS (150,000).
You can claim a tax benefit of up to 100,000, and your taxable income will be reduced to 14,00,000.
Use our tax calculator to see how NPS contributions affect your taxable income.