Summary of this article
Under the corporate NPS, an employer's contribution is tax-free up to 14 per cent of the salary in the new tax regime.
Self-employed individuals only have the all-citizen model option.
New tax regime favours the corporate model due to the additional tax benefit under Section 80CCD (2).
The National Pension System (NPS) is a pension scheme available to all Indians, including children, non-resident Indians (NRIs), self-employed individuals, and government and private sector employees. Incidentally, salaried employees contribute to the Employees’ Provident Fund (EPF), which is mandatory to be offered by organisations employing more than 20 employees. However, for many private sector organisations, NPS remains an optional scheme and for the private sector employees, too, NPS remains an afterthought.
Many a time, employees, due to not being aware of the benefits of NPS, or because of the availability of the NPS All-citizen Model, also do not actively push for corporate NPS. Employers, on the other hand, avoid offering NPS to their employees, probably due to a lack of awareness about the scheme or to avoid the administrative burden associated with offering a new scheme to the employees.
In any case, employees have the option of the NPS All-citizen model open for investment. But if the choice is given, which option could be better for them: Corporate NPS or All-citizen NPS?
NPS Is Mandatory For The Government Sector
For government employees who joined service on or after January 1, 2004, NPS has been the mandatory option until March 31, 2025. Since the implementation of the Unified Pension Scheme (UPS) on April 1, 2025, government employees have the option of choosing either NPS or UPS.
Says Rajesh Khandagale, senior vice president, principal officer – PFRDA, KFin Technologies: “For the private or non-government sector, participation in NPS is voluntary. Employers may offer NPS under the corporate sector model as a workplace retirement benefit; however, there is no general mandate making NPS compulsory for private-sector employees.”
NPS Is Voluntary for Non-Government Sector
For private sector employees, EPF is a mandatory scheme for employees getting a salary of up to Rs 15,000 per month, but not for those getting a higher salary. But, in practice, private entities, being well-versed in EPF-related operational and administrative formalities, continue to offer EPF to their employees. Likewise, they can also offer NPS by matching an equal contribution by the employer (equal contribution by both the employer and employee), or a fixed employer-only contribution, or a voluntary employee-only contribution facilitated by the employer.
Due to employers avoiding offering NPS, employees end up investing through an all-citizen model.
Is The Corporate Model More Beneficial For Tax Savings?
Says Ashish Niraj, partner, A S N & Company, a CA firm: “Under the Corporate Model NPS, one can get tax benefit on the employer contribution under Section 80CCD (2) for up to 10 per cent of salary (private sector) and 14 per cent of salary (government sector) in the old regime, in addition to the tax benefits on employees’ contribution under Section 80CCD (1) and 80CCD (1B). In the new tax regime, tax benefits are available only under Section 80CCD (2), up to 14 per cent of salary for both the private and government sectors.”
While Section 80CCD (up to Rs 1.50 lakh) and 80CCD (1B) (up to Rs 50,000) are allowed in the old regime for both the Corporate and All Citizen model, Section 80CCD (2) is available only for the NPS Corporate model, adds Niraj.
He says that apart from the tax benefits, employer contribution leads to a larger corpus for retirement under the corporate model compared to the All-citizen model.
“In my view, Corporate Model NPS is more beneficial,” he says.
What Happens When A New Employer Does Not Offer Corporate NPS?
If one leaves a job and joins another that doesn’t offer NPS, the scheme can be continued under the All-citizen model, and can again be converted into the Corporate model on a job change in the future after filing form ISS-1.
NPS Corporate Model Vs All-Citizen Model: Which Is Better
As the new tax regime has become the default choice, which offers only a few tax deductions, employers’ contribution to NPS is one of those deductions. It clearly makes the corporate model more attractive.
Says Niraj: “If you are employed with an organisation, then certainly Corporate NPS is better as it gives you scope for higher tax deduction under Section 80CCD (2). If you are self-employed or a professional, the All Citizen model is better as it gives you flexibility, a diverse choice of investments, better control over asset allocation, fund manager, etc.”
So, if your employer doesn’t tell you about NPS along with EPF, check how you can avail it through them.
