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Employer Contribution - Part of Taxable Income

Do I have to include the NPS payment from my employer in my taxable income


It's true that many of us don't give retirement much thought. We rely on the EPF accumulations to keep us alive. But for some of us, things have changed or will soon change. The national government and many private companies have moved to NPS. EPF is becoming less attractive as interest rates decline.

We have already discussed the advantages and disadvantages of investing in NPS, but we will do so once more. But, we'll focus on the tax implications of employer contributions to NPS accounts for the duration of today.


For the interest of clarity, let's define "Salary" first.


An employer-employee relationship is necessary for a payment to count as salary. Taxable pay is defined as follows by tax law:


Tax-deductible bonus for pension in lieu of salary, commissions, bonuses, or earnings

Taxable leave redemption

PF Taxable Contribution to the Employee's Pension Account under Section 80CCD

As a result, any payments to your pension account made by your employer are counted towards your taxable income.


How to establish if the employer contribution to your pension account is included in your taxable pay

Go over your Form 16 (click here for our GUIDE to understanding Form 16).


If you want a breakdown of your entire taxable salary, it will say "Employer contribution to NPS or some such" in the breakdown of your pay.


Where relevant, your Form 16 taxable salary already includes the Employer's NPS contribution, therefore there is no need to add it.


if the division of your taxable compensation is absent

Usually, this amount is subtracted from your gross taxable income. If the employer's NPS payment has already been subtracted from your taxable salary, rather than adding it again, ASK the payroll team. You may also quickly calculate if you have access to your pay stubs. Add up all the items on your payslip, such as basic pay, deferred compensation, allowances, etc., to get your total taxable salary. Only enough should be left over to cover the employer payment.


How can I subtract both my employer's and my personal (as an employee) contributions?

Without a doubt, yes! Section 80CCD allows you to deduct contributions from your employer's NPS account (2). The amount you can claim has no upper limit, however it shouldn't exceed 10% of your salary.

You may write off donations you made in accordance with sections 80C or 80CCD (1B).

Read more about how to make the most of your donation and maybe raise your total deductions to Rs 2 lakhs by maximising both of these categories.

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