How to Set Up NPS Rules for Employee Payroll & Tax

NPS Rules

  • Navigate to Tax and Statutory Compliances → Statutory Components → NPS Rules.

  • Click the Edit Icon.

  • Set the NPS deduction percentage for employees.

  • The auto-declaration and investment category are pre-defined in the system as per statutory compliance.

  • In the Old Tax Regime, employee contributions to NPS are eligible for tax deduction under Section 80CCD(1) (up to the prescribed limit) and Section 80CCD(1B) for an additional ₹50,000.

  • Employer contributions are eligible for deduction under Section 80CCD(2).

  • In the New Tax Regime, NPS deductions for both employee and employer are still allowed under Section 80CCD(2), but employee deduction benefits are limited.

  • During the payroll processing, the system will automatically deduct NPS based on the configured contribution rates for both employee and employer.

  • The amounts will appear separately in the payslip under Deductions(Employee) and Employer contribution.




Fig: NPS Rules



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