NPS has been devised primarily for the government employees but now others can also rope in this social security scheme which aims to meet your financial requirement during your retirement. And its tax treatment over the years has become lucrative and indeed at par with other retirement products such as EPF etc. It is now more of an EEE product from the taxation point of view i.e. all of the contribution made, returns earned and withdrawals accrue no tax in the hands of the investor.
And what should be your take, if your employer wishes to make contribution and should you or should you not subscribe to NPS scheme in such a case: Here is discussed the situation with complete details:
NPS if your employer wishes to contribute to NPS scheme:
There can be situations in such a case:
1. You can be given a choice between EPF and NPS: Wherein you need to definitely opt for EPF over NPS.
2. NPS contribution made by you through your employer: There can be another instance, wherein NPS can be contributed to both by you and your employer in the same proportion.
3. NPS contribution made by your employer: This will come with the restructuring of your CTC and this will be nothing over and above the cost that the company bears for you. However in such a situation your tax liability will change.
Tax implication in case employer contributes towards your NPS account:
Here there is no limit in respect of the tax benefit which the NPS account holder will get. Further, more is your basic salary more will be the tax benefit that will accrue to you. For the Central Government employees, the percentage is higher at 14%.
If you get a choice to opt for NPS from your employer:
Herein while in some of the set-ups as in public organizations it may be mandatory, in some others you may have the option to opt out, wherein the said contribution might be coming over and above the EPF contribution.
Furthermore, it is to be taken note that without NPS also one can plan his retirement well and it should be to get tax benefit certainly.
So, here is the way out suggested by experts:
Own contribution up to Rs. 50,000 can be made towards NPS tier I account:
1. Your marginal tax rate is 30%.
2. You are not going in for an early retirement.
3. You are rest assured that need for fund will not arise before 60 years of age
If contributing through your employer: What shall be the case?
Herein you will end up contributing more than Rs. 50,000 which shall not provide you any further tax benefit for your own contribution.
Also, the said contribution by both you and employer will not be a good choice in case you have a high salary of over Rs. 50 lakhs.
NPS contribution only by your employer:
Herein such a situation will be ideal as tax benefit offered will be for the entire amount. Also, you will not end up making a higher contribution over Rs. 50,000 by yourself towards the NPS Tier I account. Contribution by your employer will not be over 10% of your basic pay.
So, certainly taxpayers with a higher earning and surcharge levy can opt for this option to get a substantial tax rebate. With a slab rate of 30% and employer contribution of Rs. 1 lakh, you save tax of Rs. 31,000 that includes cess.