Definition
NPS (Employer Contribution)
The National Pension System allows an employer to contribute to an employee's retirement account, with that contribution eligible for an additional tax deduction within limits.
The National Pension System (NPS) is a market-linked retirement scheme. When an employer contributes to an employee's NPS, that contribution (up to a percentage of basic plus DA) is deductible under a specific section, over and above the employee's own deductions.
Notably, the employer-contribution NPS deduction is available even under the new tax regime, making it a valued component for tax-efficient salary structuring. The employee's own NPS contribution has separate, additional benefits under the old regime.
NPS funds are invested across equity and debt, with a portion annuitised at retirement. It complements EPF as a long-term, tax-advantaged retirement vehicle.
Related terms
- Old vs New Tax RegimeIndia offers two personal income-tax regimes: the old one with various deductions and exemptions, and the new one with lower slab rates but most exemptions removed.
- EPF (Employer & Employee Split)The Employees' Provident Fund is a retirement savings scheme where both you and your employer contribute a percentage of basic pay each month, building a corpus that earns interest.
- EPS ContributionThe Employees' Pension Scheme is funded by diverting part of the employer's EPF contribution; it provides a monthly pension after retirement based on service and pensionable salary.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.