Corporate NPS Vs Individual NPS: Difference Between Them

With excellent tax benefits, the National Pension Scheme is a popular and effective tool for retirement planning. Started with the aim of inculcating the habit of saving, NPS offers market-linked returns to its subscribers, allowing them to grow their corpus for retirement.

However, did you know that NPS can function differently for retail and corporate individuals? While retail NPS caters to all the citizens of India, including NRIs and OCIs, corporate NPS allows private employees to open an NPS account and start building their retirement corpus.

This article will walk you through the two major differences between retail and corporate NPS.

What is Individual NPS?

NPS is a voluntary, long-term investment plan for retirement where Indian citizens between the age of 18-65 can invest in the pension scheme. Individual NPS features various tax benefits, including a tax deduction of Rs. 50,000 under section 80CCD (1B) over and above the tax limit of 80CCE (under old tax regime). 

What is Corporate NPS?

Corporate NPS is available for public and private sector company employees. The scheme is offered as an additional benefit to employees along with gratuity, superannuation, provident fund, and other pension schemes.

Difference between Corporate NPS & Individual NPS

1. Eligible individuals

Retail NPS primarily caters to individual investors who voluntarily contribute towards their retirement savings. These can be anyone from salaried employees to self-employed individuals to even non-resident Indians. Retail NPS offers a platform for individuals to build their retirement corpus through regular contributions.

Corporate NPS accounts are opened by employers for their employees as part of their retirement benefits package. Public and private companies can enrol their employees into the NPS, and both the employer and employee make contributions towards the employee's retirement fund. Corporate NPS is aimed at providing retirement benefits to employees and fostering a culture of saving.

2. Tax benefits

The National Pension Scheme is a cost-effective investment option offering great tax-saving benefits to both retail and corporate investors. Retail NPS subscribers can enjoy tax deductions of up to Rs. 50,000 for their contributions made to NPS under section 80CCD(1B), in addition to the existing tax benefits of up to Rs. 1,50,000 in a year under section 80C. 

On the other hand, corporate NPS subscribers can avail of tax deductions of 10% of salary, of up to Rs. 7,50,000 on the employer's contribution under section 80CCD(2), over and above the existing benefits under section 80C. 

In addition, corporations can also enjoy tax benefits under section 36 (i) (IV) of the Income Tax Act of 1961 on the employer's contribution. They can deduct up to 10% of their salary (the NPS contribution) as a business expense from the profit and loss account. 

Types of NPS accounts

There are two types of NPS accounts-

1. Tier I:

The NPS Tier I account is a mandatory retirement or pension account. To open this account, individuals need to make a minimum contribution of Rs. 500 and the accumulated funds will be locked till retirement. Moreover, withdrawal before maturity is also allowed, but up to 25% of the corpus, while 60% of the corpus can be withdrawn on maturity.

2. Tier II:

The NPS Tier II account is a voluntary retirement and investment account that can be opened by retail individuals with a Tier I account. Individuals need to make a minimum contribution of Rs. 1000 to open this account and enjoy flexible exit and withdrawal. However, the Tier II account investments are not eligible for tax exemptions.

To wrap up

NPS offers a simple and convenient way to save for your retirement. While both retail and corporate NPS work similarly, the major differences lie in the individuals they cater to and the tax-saving benefits they offer.

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Frequently Asked Questions(FAQs)

What is the difference between NPS and corporate NPS?

NPS is available for individual retirement savings, while corporate NPS is offered as an employee benefit in the public and private sector companies with contributions from both employees and employers, often with added tax benefits.

Can I convert corporate NPS to individual NPS?

No, you cannot change corporate NPS to individual NPS on your own.

Can I have both an individual and corporate NPS account?

You cannot hold both the NPS accounts at the same time.

How do I know if my NPS is corporate or individual?

To know if your NPS is corporate or individual, log in to the CRA system with your username, password and employment details. Here, the subscriber details include information about your NPS service provider- Nodal office. If your NPS is corporate, the nodal office will be referred to as CBO/CHO (Corporate Branch/Head Office). If your NPS is individual, the Nodal office will be POP-SP/POP.