Recent regulatory shifts have significantly bolstered the attractiveness of the National Pension System (NPS) as a core component of retirement planning. For salaried employees, the corporate version of the scheme, where the employer makes contributions, has become particularly compelling due to enhanced flexibility and favourable tax treatment under the new regime.
Key Reforms That Boost NPS Flexibility
The most impactful changes, introduced in December 2025, primarily benefit non-government subscribers under the individual 'all citizen model'. The permissible lump-sum withdrawal at retirement has been increased to 80% of the corpus, up from 60% earlier, while the tax-free portion remains capped at 60%. Concurrently, the mandatory annuity purchase requirement has been reduced to 20% from 40%.
Exit rules have also been relaxed. Subscribers can now opt for a normal exit after completing 15 years in the system or upon attaining 60 years of age, whichever comes first. While these specific relaxations do not automatically apply to corporate NPS, where the employer-defined retirement age takes precedence, experts highlight a workaround.
"In the case of corporate NPS, the retirement age defined by the organisation overrides the option of exit after completion of 15 years," clarified Sumit Shukla, MD and CEO of Axis Pension Fund. However, the broader easing of lock-in and annuity rules addresses major investor hesitations. "Now, both have been considerably eased. Also, no one puts all their savings in NPS, and of that, only a small part goes to an annuity," noted Deepesh Raghaw, founder of PersonalFinancePlan.in and a Sebi-registered investment adviser.
The Tax Edge of Corporate NPS
The tax treatment under the new regime is where corporate NPS distinctly outshines its individual counterpart. Under the new tax system, employees cannot claim a deduction for their own NPS contributions. The sole NPS-related tax break available is for the employer's contribution, which is deductible up to 14% of the employee's basic pay plus dearness allowance (DA).
This provision, coupled with the mandate under India's new labour codes that basic pay plus DA must constitute at least 50% of the Cost to Company (CTC), can lead to substantial tax savings. Employees whose basic pay was previously below this threshold may now see higher employer contributions that are fully tax-deductible.
Under the old tax regime, the 14% limit for employer contributions applies only to government employees, with others capped at 10%. Additionally, employees under the old regime can claim deductions for their own contributions under Section 80C and Section 80CCD(1B).
Consequently, experts strongly advise employees to maximise their benefit from the employer's contribution, which is part of the CTC and tax-deductible. "For those [companies] it does, Raghaw recommends they exhaust it to the maximum extent of an employer’s contribution," the original report stated.
Portability and Adoption Challenges
A significant advantage of the NPS is its portability. Subscribers can seamlessly move their account, identified by a Permanent Retirement Account Number (PRAN), across jobs, sectors, or even shift from a corporate to an individual plan while in the same job. "Remember, you are only shifting your sector (corporate to individual), the PoP (points of presence) remains the same," explained Kuldeep Parashar, co-founder and CEO of Zerodha-backed PensionBox.
Despite its benefits, corporate NPS adoption remains low compared to the Employee Provident Fund (EPF). Unlike EPF, which is mandatory for organisations with 20 or more employees, corporate NPS is voluntary. "NPS is not a priority for companies. Some are not even aware of it," Parashar observed, dispelling the myth of high compliance by noting that Points of Presence (PoPs) handle most of the work at no cost to the employer.
The data reveals a stark gap: while 7.66 lakh companies offer EPF, only about 19,867 companies offer corporate NPS. Although most large corporates have adopted it, numerous small and medium enterprises have not. In the financial year 2024-25, corporate NPS subscribers numbered 22.75 lakh, compared to 42.65 lakh individual subscribers.
Enrolment varies, with younger employees or those with zero tax liability (annual income up to ₹12.75 lakh under the new regime) often opting out to prioritise take-home pay. Nonetheless, the consensus among experts is clear. They champion NPS as a disciplined, low-cost framework for long-term retirement savings. Raghaw encapsulates its utility: "NPS is a wonderful product that helps you rebalance between equity and debt without any tax implications."
