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Know Everything About Employer's Contribution To NPS

Published On Feb 07, 2022 11:20 AM By InsuranceDekho

The Pension Fund Regulatory and Development Authority oversees NPS. It is based on a defined contribution model, in which the subscriber is obligated to contribute to the retirement account on a regular basis while employed; the cumulative corpus is determined by the contributions made and the income generated from the investments made with that corpus. Withdrawals are permissible under certain circumstances. The contributions are invested in four key asset classes: stock, corporate bonds, government bonds, and alternative assets, through pension funds.
The National Pension Scheme was created by the Indian government in 2004 as a pension-cumulative-investment scheme for Indian residents aged 18 to 65. It appeals to people who do not have the security of a normal pension after retirement. To know more about employer's contribution To NPS, read on.

Know Everything About Employer's Contribution To NPS

Impact of Employer Contribution to NPS on Investment Returns

You've probably figured out that the NPS employer contribution is in addition to your own. The selected Fund Manager invests the total monthly contribution in market vehicles such as stocks, bonds, and government securities. However, while deciding between the Auto and Active investment styles, your risk tolerance is critical.
At the conclusion of each business day, the Fund Manager announces the Net Asset Value (NAV), which represents the value of your retirement account. Because the asset allocation ratio in a varied portfolio is restricted at 50%, you are safeguarded from market volatility risk.

Employer Contribution to NPS Variations

The basis of your retirement corpus is your mandatory monthly contribution of 10% of your remuneration. While the employer's contribution to NPS is not capped, it normally matches yours. The 14 percent NPS employer contribution to employee accounts of the Central Government, Central Autonomous Bodies, and Bankers is an exception to this regulation.
The distinction is critical when it comes to calculating your tax burden and qualifying for tax benefits offered by all government-sponsored programmes. Let's look at the tax consequences of NPS contributions and investments.

The goal of your NPS membership is to establish a sizable retirement fund by investing in market instruments and attracting better long-term returns. Furthermore, your NPS is a tax-advantaged vehicle that qualifies for deductions under different provisions of the Income Tax Act of 1961.
After you retire, the withdrawal phase begins when you divide the fund in accordance with the NPS regulating guidelines.
Following are the listed factors as follows -

1. INVESTMENT PHASE - The Income Tax Act of 1961 has three key parts for tax savings: 80CCD (1), 80CCD (1B), and 80CCD (1C) (2). All of these items are covered under Section 80C, which has a ceiling of Rs.1.5 lakh every financial year. Despite the fact that Section 80CCD only applies to NPS, you have the opportunity to save more, particularly with the employer's contribution to NPS. If you work for the government, for example, the NPS employer contribution is 14%, and you may claim a matching tax deduction with no limit. Employer contributions to NPS beyond 10%, on the other hand, are considered a benefit under the head pay and are taxed if you work in the private sector.

2. WITHDRAWAL PHASE - After you reach the age of sixty, you can take your retirement funds from the Tier 1 account you created with your employer's NPS contribution. However, according to PFRDA norms, your withdrawal will be made in two instalments.

3. TAX ON PARTIAL WITHDRAWAL - Although withdrawals from the Tier 1 account are restricted, partial withdrawals are permitted following compliance with the underlying requirements. Tax-free partial withdrawals are also possible -

  • After three years of membership, you can seek a partial withdrawal.
  • The maximum amount you may withdraw is 25% of your investment, not the fund value.
  • During your NPS tenure, you can seek a partial withdrawal a maximum of three times, with prescribed pauses between each request.


One of the major advantages of retirement planning with this best investment plan is that you may take advantage of current tax savings while investing for your future. NPS has a number of tax advantages. Aside from NPS, Max Life Insurance offers a variety of savings options. You can figure out how much these tax-saving investing options will cost you and then pick the best one for you.

Also read- Everything You Must Know About YSR Pension Kanuka!

Pros And Cons Of Investing In A Pension Plan

Disclaimer: This article is issued in the general public interest and meant for general information purposes only. Readers are advised not to rely on the contents of the article as conclusive in nature and should research further or consult an expert in this regard.

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