Understanding NPS and NPS Setup in Payroll Module

National Pension Scheme Configuration

National Pension Scheme (NPS) India is a voluntary and long-term investment plan for retirement under the purview of the Pension Fund Regulatory and Development Authority (PFRDA) and the Central Government.

The National Pension Scheme (NPS) is a social security initiative by the Central Government. This pension program is open to employees from the public, private and even the unorganized sectors, except those from the armed forces.

The NPS scheme holds immense value for anyone who works in the private sector and requires a regular pension after retirement. The scheme is portable across jobs and locations, with tax benefits under Section 80C and Section 80CCD.

This scheme has been in effect for over a decade, and so far has delivered 9% to 12% annualized returns. In NPS, you are also allowed the option to change your fund manager if you are not happy with the performance of the fund.

Employee Tax Benefits For Self-Contribution:

Employees who contribute to NPS can claim the following tax benefits on their contributions:

Tax deduction of up to 10% of pay (Basic + DA) under Section 80CCD(1), subject to a maximum of Rs.1.5 lakh under Section 80CCE.

Tax deduction of up to Rs.50,000 under Section 80CCD(1B), along with the overall limit of Rs.1.5 lakh under Section 80CCE.

Employee Tax Benefits On Employer Contributions:

Employer's contribution towards NPS of an employee is eligible for a tax deduction of up to 10% of salary, i.e. basic plus DA, or 14% of salary if such contribution is made by the Central Government under Section 80CCD(2) beyond the Rs.1.5 lakh limit provided under Section 80CCE.

Tax Benefits For Self-employed People:

Self-employed individuals who contribute to NPS can claim the following tax benefits on their own contributions:

Tax deduction of up to 20% of gross income under Section 80CCD(1), subject to a total limit of Rs.1.5 lakh under Section 80CCE.

Tax deduction of up to Rs.50,000 under Section 80CCD(1B), along with the overall limit of Rs.1.5 lakh under Section 80CCE.

1. How to configure NPS Employer in the system

1. First, we need to create one CTC payhead under the Allowance category e.g., NPS Employer
2. Set up required properties in the same payhead and make Tax applicable as “False” through Compensation & Benefits
3. Then Go to Payroll screen -> Other Templates -> From Drop down select Payhead Master and click on Download -> Remove default details except headers -> enter details of Pay group Name/Payhead Type & Code/go to column “NpsEmployerApp” and enter 1 (1 means Applicable) -> Upload template.
4. Please do the template configuration
5. Amount updated under NPS Employer CTC should be less than or up to 10% of Basic+DA for Old Tax Regime & 14% for new tax regime
6. Taxable NPS Employer will be appeared under Perquisite section and exemption will be appeared under DEDUCTION_U_S_80CCECCD_NPS