National Pension Scheme

National Pension Scheme

National Pension Scheme (NPS) has been launched in 2016 to allow tax paying citizens to save some tax through investment under this scheme. This is a voluntary scheme.

Highlights of this scheme are -

1. Under Section 80CCD(1) - Employee contribution up to 10% of their salary up to Rs 1.5 lakh is eligible for tax deduction. This contribution along with Sec 80C has Rs 1.5 lakh investment limit for tax deduction purposes. However the limit is 10% of employee's annual income up to maximum of Rs 1.5 lakhs.

2. Additional benefit of Rs 50,000 under Section 80CCD(1B) over and above Rs 1.5 lakhs available in Section 80(C)

3. Tax rebate under Section 80CCD(2) on investment made by the employer in employee's account. The rebate is limited to 10% of salary for employees under Old Regime and 14% of salary for employees under New Regime

4. There are two types of accounts under NPS - Tier 1 and Tier 2. Tier 1 account is the pension account in which the deposit made by company or by the individual will lead to a tax rebate. Tier 2 account is an secondary account where amount can be deposited by the individual but it will not lead to a tax rebate.

Setting up NPS feature

Go to Setup > Payroll setup > Company Setup > Payroll Setup tab - Activate the parameter for NPS Employer and NPS Employee declarations. 


Refer article on Payroll Setup for more details.
Note - if NPS Employer deduction is modelled as a CTC component then while doing salary changes from past date this figure cannot be changed, it can only be changed from a future date as it is paid to the government on a monthly basis.

NPS Employee Contribution

To update NPS details for an employee follow the steps given below -
1. Go to Payroll > Employee Details and edit the employee record for whom NPS declaration has to be updated.
2. Go to Declarations page > NPS declarations tab


3. To declare Employee contribution, click on "Add New" on NPS Employee Contribution table and fill up the declaration.



Note - Employees can continue to declare investment they makes in NPS Tier 1 account. This can be declared under "80CCD(1) - Investment In Pension Schemes (Tier 1 account)" in tax saving declaration process. This investment is considered under section 80CCD(1) up to the limit of 150,000 and if the limit is exceeded it is automatically considered in 80CCD(1B).

NPS Employer Contribution

NPS Employer contribution can be modelled in two ways.

1. Included in salary - it can be added to the salary. If you has modelled salary as Gross salary, then it will be shown as Employee's earning and deduction in salary register and salary slip. If you have modelled as salary as CTC then it will be only shown as Employer contribution. In either case the contribution amount can be only modelled through salary, it cannot be declared like it is done for employee contribution directly. 

The amount of NPS deposited as employer contribution can be seen on Declarations > NPS tab as shown above.

2. Not included in salary deduction - it can modelled as a employer contribution which is not included in salary. In this case the deduction amount needs to be filled up by the Payroll Manager as a declaration as shown below.


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