How to open corporate NPS Scheme in India?
National Pension Scheme (NPS) is one of the good and safe retirement tool for low risk investors. It is a pension plan in which one can invest during his working years and withdraw at the time of retirement. However, many people are unaware about the corporate model of NPS. What is Corporate NPS all about? How Corporate NPS Registration done? What are the key benefits of Corporate NPS? Who can join Corporate NPS and who cannot? This article would provide a complete guide to the Corporate NPS Scheme.
Also read: How to open eNPS Online and Offline?
What is Corporate NPS?
Launched in December 2011 the Corporate National Pension Scheme is similar to the Provident Fund Scheme offered by employers to employees. It is regulated by PFRDA (Pension Fund Regulatory Authority). Available in both the formats of companies- private and public, it is a win-win situation for both employer and employees. Like a provident fund scheme, this scheme is also a contribution scheme through which employer and employee can create a corpus for employees’ pension wealth. This scheme can be run parallel to superannuation, gratuity, provident fund and like any other pension schemes.
How to do Corporate NPS Registration?
Corporate NPS is the customized version of core NPS to suit the requirements of various organizations. In order to avail the benefit of corporate NPS to its employees, the organization needs to register itself through a PoP-SP (Point of Presence-Service Providers are the authorized financial institutions for NPS subscribers) by submitting Corporate Registration Form and KYC documents as prescribed by the regulator. PoP sends these documents to CRA (Central Record keeping Agency), which creates a Corporate Registration Number called CHO or CBO number.
Employee registration process
If an employee, who is working in an organization that is registered under the corporate model of NPS, he needs to fill the CS-S1 form to open Tier I and Tier II account. It has to be attested by the HR department of the company. The subscriber needs to submit KYC documents and the form to the nearest PoP branch.
Types of investment
A subscriber can open twe types of accounts, Tier I pension account and Tier II savings account.
1) Tier I account: The employer and the employee, both can make an equal or unequal contribution in the NPS-Corporate sector model. The employee contribution is mandatory for this account, whereas the employer contribution is optional. This account does not allow withdrawing money before 60 years of age. A minimum of Rs. 1,000 has to be invested each year in this account, otherwise a penalty of Rs. 100 is levied upon the subscriber.
2) Tier II account: Tier II account can be opened only if you have active Tier I account. It is a voluntary savings facility. It offers the subscribers to withdraw the savings whenever they wish. A minimum contribution of Rs. 2,000 is required each year in this account.
What are the key benefits of NPS?
The following are the key benefits of Corporate NPS.
1) The biggest advantage is the tax benefit up to a 10 % deduction on the basic pay + DA of the employer’s contribution on behalf of the employee under section 80CCD (2) of the Income Tax Act, 1961. This benefit is over and above Rs. 1,50,000 under section 80C, which is applicable to the employee’s contribution to the NPS kitty.
2) Not only, the employee, but the employer can also show this contribution as an expense in his profit and loss account and claim tax benefit under section 36 of the Income Tax Act, 1961.
3) By providing the facility of NPS over and above the Provident Fund Contribution, the company creates goodwill.
4) Either the employer or the employee can choose the PFM for the employee’s NPS account.
5) Investment in NPS comes with lower administrative costs.
FAQs about the corporate NPS scheme
It is a relatively new scheme about which many questions arise in the minds of subscribers. Here are the few common questions, which make the concept of Corporate NPS quite simple to understand.
1) Who can subscribe for NPS?
The subscriber has to be a citizen of India who is between 18 to 65 years of age as on the date of submission of his or her application.
2) Who cannot join NPS?
Individuals who are un-discharged insolvent i.e. who are not granted an ‘order of discharge’ by a court.
Individuals who are not of sound mind – a person is said to be of unsound mind when he is not capable of making a contract, not capable of understanding it and forming a rational judgment regarding its effect upon his/her self-interest.
3) Is an NRI eligible to open an NPS account?
Yes, an NRI can open an NPS account, but the contributions made by him towards the NPS are subject to regulatory requirements prescribed by RBI and FEMA from time to time. In case of a change in the citizenship of the subscriber, his or her NPS account would be closed.
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4) If one already has a Public Provident Fund account, can he still invest in NPS?
Yes, investment in NPS is independent of your contribution to any provident fund.
5) Is there any upper limit for investments under NPS?
At present, there is no upper limit on the maximum amount of investments in NPS.
Conclusion: It is the simplest, safest and most effective way to plan your retirement. It provides better growth options through long-term market linked savings. The account can be operated anywhere from the country.
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How to open corporate NPS Scheme in India