EPF Vs NPS For Retirement Saving Option: Five Things To Know

The PF subscribers are allowed to invest as much as 15% of the portfolio in equity, whereas NPS subscribers can invest upto 75%

EPF Vs NPS For Retirement Saving Option: Five Things To Know

Both EPF and NPS contributions are exempt from income tax subject to some caps

The Employees Provident Fund (EPF) and National Pension System (NPS) are viable saving options that enable regularly-made savings to grow into a sizeable sum, by the retirement of subscribers, owing to fluctuating rates of interest offered on them, and the compounding effect over a long period spanning nearly three decades. Although both saving options offer tax benefits (via deductions allowed from the gross income) and are the government-sponsored schemes, but there are some distinctions too, relating to the quantum of tax exemptions that can be availed, rate of returns accrued on the investments and the degree of flexibility of determining the equity exposure, among other things.

Also Read: EPF Account Withdrawal, Other Claims: EPFO Announces New Rules

The EPFO has nearly six crore subscribers and manages a corpus of about Rs 10 lakh crore. For final settlement of a provident fund deposit, the subscriber is required to select Form 19. He or she can select Form 31 for part withdrawal and Form 10-C for pension withdrawal benefits)

EPF Vs NPS. Five Things To Know

1. Equity Exposure: The PF subscribers are allowed to invest as much as 15% of the portfolio in the equity. EPFO commenced investing in equity in August 2015. In 2015-16 it invested 5 per cent of its investible deposits, subsequently increased to 10 per cent in the 2016-17 and 15 per cent in 2017-18. At the same time, the NPS subscribers can choose the equity exposure to be raised to 75%. Recently, it was reported that the Employees Provident Fund Organisation (EPFO) subscribers would soon have an option to increase their equity exposure of their provident fund into stocks through exchange trade funds (ETF). However, this proposal is yet to be rolled out.

2. Tax Benefits: The employees contribution into the EPF is allowed to be deducted under section 80 C upto the limit of Rs 1,50,000. At the same time, NPS subscribers can avail deduction of Rs 2 lakh in total under the section 80CCD (1) and section 80 CCD (1B) of the income tax (I-T) Act. The EPF offers tax saving at all three levels of contribution, interest accrual and also at the time of withdrawal at the time of retirement. Whereas the NPS offers tax saving at first two levels of contribution and interest accrual but withdrawals (in the form of annuity) are taxable. The lumpsum withdrawal in NPS will be exempt upto 40% of such withdrawals.

Also Read: National Pension System (NPS) Features, Interest Rates Explained

3. Flexibility: In the case of EPF, subscribers can't choose their fund manager, whereas NPS offers this flexibility. As of now, there are seven fund managers offering varying rates of returns. These seven fund managers are HDFC Pension Fund, ICICI Prudential Pension, Kotak Pension Fund, LIC Pension Fund, Reliance Capital Pension, SBI Pension Fund and UTI Retirement Solutions. In the case of NPS, subscribers can switch over from one investment option to another or from one fund manager to another subject, to certain regulatory restrictions. The interest rates on NPS are totally market-related. This flexibility is a far cry for the EPF subscribers.

4. Accounts To Be Managed: Provident Fund (PF) subscribers are allowed to operate only one account that is linked the universal account number (UAN), whereas the NPS subscribers can open two accounts wherein the first one (tier 1) is mandatory with strict withdrawal conditions imposed on them, and the second (tier 2) is a voluntary account from which withdrawable is permitted. Opening an account with the NPS provides subscribers with a Permanent Retirement Account Number (PRAN), which is a unique number and it remains with the subscriber throughout their lifetime.

5. Mandatory/ Optional: EPF account is a mandatory for every establishment in which 20 or more persons are employed and certain organisations are covered, subject to certain conditions and exemptions even if they employ fewer than 20 persons each. The NPS account is mandatory only for government employees and not for the private sector employees, however, it can be opened by anyone, irrespective of the nature of employer.