Companies are now offering private job holders the option to invest in NPS along with EPF. If you work in the private sector and want to build a large retirement fund, you may wonder which option is better. If you’re confused, experts can help you make the right decision. This will not only help you create a big fund for the future but also save on taxes.
Salaried employees usually consider the National Pension Scheme (NPS) and Employees Provident Fund (EPF) when planning for retirement. While anyone can invest in NPS, EPF is only for salaried individuals. Some employers now allow employees to choose both options. However, not all companies offer NPS. If your employer does, you can request them to include the employer’s contribution as part of your salary.
What is the Difference Between NPS and EPF?
According to NPS rules, employees are not required to contribute to avail of employer benefits. They can request their employers to contribute up to 14% of the basic salary. On the other hand, in EPF, the employee must contribute 12% of their salary for the employer to match the contribution.
Where Will You Save More Tax?
Employer contributions to NPS are part of your gross salary and can be tax-exempt. However, employer contributions to EPF, which may be included in your CTC, are completely tax-free. If the total contributions to NPS, EPF, and other superannuation funds exceed Rs 7.5 lakh per year, tax will be levied on the excess amount.
Which Option Offers More Flexibility?
When it comes to flexibility, NPS is the better choice. In EPF, employees need to transfer their accounts to a new employer when changing jobs, involving both the old and new employers. NPS, however, offers flexibility and continuity without the need for employer approval to stop contributions or transfer the account.
Which Will Generate Higher Returns?
NPS offers market-linked returns and benefits from compound interest at a higher rate than EPF. In contrast, the return rate from EPF is set annually by the Employees’ Provident Fund Organization (EPFO). For the financial year 2025, the rate is 8.25%, but there is no compounding benefit in EPF.
What Are the Withdrawal Rules?
In NPS, you can withdraw up to 25% of your deposit amount three times during your employment. After retirement, 60% of the amount can be withdrawn tax-free as a lump sum, while the remaining 40% must be used to purchase an annuity plan for a pension. In EPF, you can withdraw the full amount after leaving your job or after retirement. The withdrawal is tax-free only if you have completed at least 5 years of service. While NPS provides a pension depending on the annuity you buy, EPF offers a fixed lump sum pension of Rs 7,500.