Investment in NPS or EPF : Most of the working people in the country seek the help of National Pension Scheme (NPS) and Employees Provident Fund (EPF) for their retirement scheme. Although anyone can choose the option of NPS, the EPF facility is only for permanent employees. Many companies offer both options to their employees. According to experts, not every company offers NPS, but if your company provides this facility, you can request to invest in NPS.
There will be a decrease in salary coming in hand.
If you want, you can contribute to EPF as well as NPS. The effect of this will be that your in-hand salary may be reduced. The question among all of them is what is the difference between EPF and NPS and which option can be better?
Rules of contribution to EPF and NPS
NPS employees do not need to contribute their own to get employer benefits. The employer can contribute up to 14% at its will. Similarly, for EPF, the employee has to deposit 12% of his salary in EPF. After this, the employer will have to deposit the same amount. This means that the employee does not need to contribute to NPS, but it is necessary to contribute to EPF.
Tax benefits in NPS and EPF
The employer is contributed to the contribution under NPS. If the total contribution to NPS, EPF and Supernuation Funds is Rs. If your income is more than Rs 7.5 lakh, then the additional amount will be taxed. There is no tax exemption on NPS in the new tax system. Apart from this, the contribution of the employer to EPF is also tax-free. The amount deposited by the employee is tax -free. If an employee withdraws money from EPF before five years, it will be taxed.
Does NPS have more tax benefits than EPF?
If you are in the old tax system, you get tax benefits in both EPF and NPS. But there is no additional tax exemption on both EPF and NPS in the new tax system.
Benefits of NPS and EPF
The specialty of EPF account is that this type of account is flexible. On changing the job, the employee will have to transfer his EPF account. You have to quit your job to get EPF. But partial withdrawal can be done under certain circumstances. On the other hand, there is no need to move NPS if you change the job. If the employer does not have the NPS facility, you can convert it into a ‘model for all citizens’ and contribute it yourself.
NPS has more flexibility because it can be managed from anywhere and at any time. As soon as you quit your job, EPF has to transfer and the contribution stops.
Investment and returns in NPS and EPF
The interest rate of EPF is determined by the EPFO. The EPF interest rate for FY 2024-25 has been fixed at 8.25%. It gets fixed returns and there is no market risk of any kind. On the other hand, the return of NPS is connected to the market and compound interest may receive higher returns. Private sector NPS customers can change their investment asset allocation four times a year. The NPS is expected to get more returns in the long term than EPF. The NPS is connected to the market and provides the benefit of compound interest.
Conditions to withdraw money from NPS and EPF
Partial withdrawal from EPF can be done during employment under certain conditions. After leaving the job, you can withdraw all the money from this account. Withdrawal will be taxed before five years. On the other hand, partial withdrawal of up to 25% can be done thrice during employment in NPS. After retirement, 60% of the money can be taken out tax-free. It is necessary to deposit 40% of the amount in the annual pension.
Which is more beneficial?
If you want to withdraw all the money then EPF is better. But if you want regular pension after retirement then NPS can be a good option. According to estimates, employees can get pension of up to Rs 7,500 per month under EPF. Your pension under NPS will depend on how much you invest in the pension scheme.
