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For withdrawals, NPS allows 25% of contributions to be withdrawn up to three times during employment, with 60% of the corpus being tax-free post-retirement and 40% going to annuities.
NPS offers flexibility in contributions, with employers able to contribute up to 14% of the basic salary without requiring employee contributions.
NPS Vs EPF: Planning for retirement is crucial, and in India, two prominent schemes help individuals secure their future: the National Pension System (NPS) and the Employee Provident Fund (EPF). While NPS is accessible to everyone, EPF is typically reserved for full-time employees. Interestingly, some employers now offer both options, allowing employees to maximise their retirement savings and enjoy various tax benefits.
While NPS offers market-based returns, EPF’s interest rate is set by the Employees’ Provident Fund Organisation on a yearly basis.
“Although not all employers provide NPS, those who do allow employees to include employer contributions as part of their salary package,” Abe Abraham, Partner at Cyril Amarchand Mangaldas said, as cited by LiveMint. This can be combined with EPF contributions, though it might reduce the take-home salary. NPS remains optional, whereas EPF is generally mandatory, he added.
NPS offers flexibility in contributions, with employers able to contribute up to 14% of the basic salary without requiring employee contributions. In contrast, EPF mandates contributions from both employer and employee, typically at 12%.
NPS Vs EPF: Features
Feature | National Pension System (NPS) | Employees’ Provident Fund (EPF) |
Tax-Free Annual Income Limit | ₹13.7 lakh | ₹12 lakh |
Standard Deduction | ₹75,000 | ₹75,000 |
Employer Contribution Limit | Up to 14% of basic salary (tax-deductible) | Up to 12% of salary (tax-exempt) |
Employee Contribution Deduction | Not deductible under the New Regime | Not deductible under the New Regime |
Interest Rate | Market-linked returns | Fixed-rate of 8.25% |
Management Fees | 0.09% per year | Not applicable |
Flexibility | High (asset allocation, fund switching) | Low (fixed contributions and returns) |
Withdrawal Taxation | Taxable on withdrawal | Exempt under certain conditions |
NPS Vs EPF: Old Tax Regime
Under the old tax regime, both employers and employees contribute 12 per cent of the employee’s basic salary. In NPS, employer’s share is available for tax-deductible, while employer’s share is for tax-exempt.
NPS Vs EPF: New Tax Regime
Under the new tax regime, only employer will contribute to 14% of the basic salary in NPS. Only the employers’ share is available for tax deductions.
What Are Tax Benefits For NPS & EPF?
Tax benefits for NPS include employer contributions being tax-deductible, while EPF contributions are tax-exempt. However, if combined contributions to NPS, EPF, and other superannuation funds exceed Rs 7.5 lakh annually, the excess becomes taxable. Employee contributions to either scheme do not receive tax deductions under the new tax regime, Deepashree Shetty, Partner, Global Employer Services, Tax & Regulatory Services, BDO India, told LiveMint.
NPS Is Flexible And Switchable
NPS provides greater flexibility when switching jobs, as it doesn’t require employer approval to stop contributions or transfer accounts. Employees can continue contributing to NPS even after changing jobs or convert their corporate NPS account to an all-citizen model if they leave employment.
NPS Offers Higher Returns Than EPF
NPS returns are market-linked and generally higher than EPF, which has a fixed return rate set by the Employees’ Provident Fund Organisation (8.25% for FY25). NPS subscribers can adjust their asset allocation up to four times a year without tax implications, said Kurian Jose, CEO, Tata Pension Fund Management, as cited by LiveMint.
Withdrawal Feature In NPS and EPF
For withdrawals, NPS allows 25% of contributions to be withdrawn up to three times during employment, with 60% of the corpus being tax-free post-retirement and 40% going to annuities. EPF allows partial withdrawals during employment and full withdrawals post-retirement, tax-free after five years of service. NPS can potentially generate a higher pension, while EPF offers a maximum pension of Rs 7,500 per month.
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