Nationwide pension system (NPS) and worker provident fund (EPF) are two key retirement schemes in India. Whereas anybody can open an NPS account, one must be in a full-time job to contribute to EPF.
Some employers now present each, permitting staff to spice up their retirement corpus whereas having fun with tax perks.
However must you go for each? And the way does it influence your take-home wage? Let’s break it down.
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“Not all employers provide NPS, but when your employer does it, you may request them to make employer contribution part of your wage. You’ll be able to have it together with employer and worker contribution to EPF, if you’re comfy with decreasing your in-hand wage. Whereas NPS is non-obligatory, EPF is obligatory usually,” stated Abe Abraham, companion, Cyril Amarchand Mangaldas.
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Employers can contribute as much as 14% of your fundamental wage to your NPS account within the new tax regime. It’s 12% in case of EPF. Worker contribution is obligatory in EPF to be eligible for the employer contribution, which is usually of the identical quantity.
NPS gives extra flexibility—staff are usually not required to contribute to obtain employer advantages. Employer contributions can fluctuate, and staff can request to maintain it at any degree as much as 14% of the essential wage.
Tax advantages unveiled
The employer contribution to NPS, which is a part of your gross wage, qualifies for tax deduction below part 80CCD (2) of Revenue Tax Act once you calculate your tax legal responsibility.
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Gross wage is the full sum of money an worker receives earlier than any deductions are made. It consists of fundamental pay, bonuses and allowances.
Employer contribution to EPF, which may very well be a part of your CTC, is tax exempt. Nevertheless, if the mixture contribution to NPS, EPF and different superannuation funds crosses ₹7.5 lakh every year, the surplus quantity will get taxable.
“Employer EPF contribution is tax exempt as much as a sure restrict, be it a part of the CTC or not, whereas employer NPS contribution will get a tax deduction below part 80CCD(2) of the Revenue Tax Act. Staff are allowed to have each,” stated Deepashree Shetty, companion, World Employer Providers, Tax & Regulatory Providers, BDO India.
Worker contribution to EPF or NPS doesn’t get any tax deduction within the new tax regime.
EPF vs NPS: Who’s in management?
Transferring EPF might be tough when switching jobs, as each your current and new employer play a task within the course of. In distinction, NPS gives flexibility and continuity. You don’t want employer approval to cease contributions or switch your account.
In case your new employer offers NPS advantages, you may proceed contributing seamlessly. Even after leaving a job, your NPS account stays energetic. You may as well convert your company NPS account to the all-citizen mannequin—permitting self-contributions—by merely filling out the ISS type.
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Furthermore, NPS returns are market-linked and compound at a better fee than EPF. The EPFO units EPF charges yearly. It’s 8.25% for FY25. EPFO invests your contribution as per EPF guidelines.
“In NPS, subscribers have the pliability to decide on how their cash is invested throughout fairness, company bonds, authorities securities, and alternate funding property, inside the limits set for every asset class. This permits staff to tailor their investments in accordance with their threat preferences,” stated Kurian Jose, CEO, Tata Pension Fund Administration.
NPS subscribers within the non-public sector can regulate their asset allocation as much as 4 occasions in a monetary yr, primarily based on their understanding of the markets, altering monetary scenario, or evolving targets. These switches throughout asset class don’t set off any tax influence, thus offering an environment friendly option to actively handle their investments, he added.
Staff can simply open their NPS account digitally and easily share their PRAN (everlasting retirement account quantity) with their employer. The cost into the NPS structure is then routed by means of wage deduction as facilitated by the HR crew, stated Jose.
As far as withdrawals are involved, 25% of your contributions might be withdrawn at any time, as much as 3 occasions throughout your employment. Put up retirement, 60% of the corpus might be withdrawn tax free and 40% goes to annuities to generate pension.
In EPF, partial withdrawal is feasible whereas within the job. You’ll be able to withdraw the total quantity after leaving the job. Put up-retirement, you may withdraw the total quantity. Your withdrawal might be tax free solely if in case you have accomplished 5 years of service.
Pension cap
On the pension entrance, NPS will help in producing increased pension relying in your corpus you employ for annuities. Nevertheless, with EPF, you may solely get a most pension of ₹7,500 per 30 days.
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“Pension is out there below EPS (worker pension scheme). EPS contributions are made by employer at 8.33% of an worker’s fundamental wage whether it is under ₹15,000. Staff get it after their retirement with a cap restrict of ₹7,500 per 30 days,” stated Shetty.
EPS is a retirement profit scheme below the EPF, the place the employer contributes a portion of the worker’s wage to offer a month-to-month pension after retirement, topic to sure circumstances.
If an worker who isn’t a member of EPF or EPS joins an employer on or after 1 September 2014, with a fundamental wage exceeding ₹15,000, their pension contribution is added to the worker’s EPF share as a substitute of going into EPS.
For all different instances, pension contributions stay payable as per the usual EPF-EPS construction.
