Both superannuation and NPS are employer-assisted retirement savings instruments that offer tax benefits. However, they work differently, have different tax treatments, and suit different types of employees. Here is a clear comparison.
Superannuation Fund
- Employer contributes to an approved superannuation trust
- Employer contribution up to \u20b91,00,000/year per employee is tax-free as a perquisite (exemption limit; excess is taxable)
- Combined employer contribution to PF + NPS + superannuation exceeding \u20b97.5 lakh/year becomes taxable
- On retirement: lump sum commutation (1/3 of corpus) is tax-free; annuity is taxable
- Employee cannot voluntarily contribute to superannuation
National Pension System (NPS)
- Both employee and employer can contribute
- Employer contribution (up to 10% of salary) is deductible under 80CCD(2)-available under both old and new regime
- Employee voluntary contribution up to \u20b950,000 gets additional deduction under 80CCD(1B) (old regime only)
- At 60: 60% lump sum withdrawal is tax-free; 40% must be annuitised (annuity is taxable)
- Flexible investment options with choice of fund managers
Which Is Better?
- For tax saving under new regime: NPS (employer 80CCD(2) benefit is available; superannuation has no special new regime benefit)
- For old regime with maximum deductions: Combine both if your employer offers both
- For flexibility: NPS offers partial withdrawal options and investment choice
Discuss with your HR team how to structure employer contributions optimally. Use the SaveTaxNow Calculator to model NPS vs superannuation impact on your taxes.