Know All About Employer’s Contribution to NPS

The National Pension System (NPS) is an excellent tool for retirement planning. However, while most employees are familiar with what is NPS and even contribute towards it, many overlook a powerful advantage - employer contribution to NPS. They can help you enhance your retirement savings without any additional investments and even claim tax benefits. 

In this article, we’ll break down everything you need to know about NPS employer contributions.

What is employer contribution to NPS?

The employer’s contribution is the amount deposited by the employer into your NPS account. While it isn’t mandatory for private sector employers, many companies offer this perk as part of employee benefits. It is a voluntary contribution that often matches your own NPS contribution up to a certain limit.

However, in the public sector, employer contributions to NPS are mandatory and follow a fixed contribution structure. They enhance retirement savings and provide tax benefits to both the employer and the employee. 

How much can employers contribute to the NPS?

In the private sector, employers can contribute up to 10% of employees’ basic salary plus dearness allowance (DA) to their NPS account every month. However, this limit is higher at 14% for Central Government employees or bank staff.

Thanks to long-term compounding, the employer's contribution helps grow your retirement savings faster. Say your employer contributes Rs. 5,000 every month to your NPS account. The annual contribution will come to Rs. 60,000. If your employer contributes regularly for 25 years at an average annual return of 10%, the maturity amount will be more than Rs. 65 lakh. This is an addition to your retirement savings without investing a single rupee from your own pocket.

You can also enjoy tax benefits under various sections of the Income Tax Act.

Tax benefits of NPS contributions by employees and employers

You can claim the following tax deductions on NPS contributions made by both you and your employer:

Note: The combined tax-free limit for employer contributions to NPS + PF + Superannuation is Rs.7.5 lakh annually. 

Benefits of the employer’s contribution to NPS

1. Enhanced retirement corpus: Employer contributions add extra funds to your NPS account, helping you build a larger retirement corpus over time.

2. Taxation benefits: Contributions made by your employer are eligible for tax benefits, lowering your overall tax liability.

3. Better financial security: With both employer and employee contributions, you're better prepared to maintain your lifestyle after retirement.

Conclusion

Employer’s contribution to NPS can help you build a solid retirement corpus while enjoying tax benefits. With year-on-year growth, it becomes a valuable investment for long-term financial security. Begin contributing to NPS through Tata Capital Moneyfy and build a strong foundation for your post-retirement life.

Create your account online by visiting the official website or downloading the mobile app.