What is EPF
Under the Employees Provident Fund, employees are required to deposit at least 12 percent of their salary from their salary. The employer also puts the same amount in the employee’s EPS. This contribution is made to the retirement fund of the employee. After the age of 58, the entire amount of EPF Fund can be withdrawn. However, there is a provision to withdraw partial amount for medical expenses, house building, education etc.
What is NPS
It is worth noting that the National Pension System is a government retirement saving scheme, which was launched by the central government in the year 2004. Since 2009, the scheme has also been opened to the people working in the private sector. Now any employee working in the private sector with the government can join the scheme on their own free will.
An investor has to open an account in NPS on his own. Under this, at least 500 rupees can be invested in Tier-1 accounts and up to Rs 1,000 in Tier-2 accounts. There is no fixed limit for investment in NPS account.
Also read- Investing in NPS is easy, e-KYC approval
PF contribution is more than 2.5 lakh, then tax will be charged on interest
Finance Minister Nirmala Sitharaman proposed in the budget (Budget 2021) that the tax exemption should be limited to Rs 2.5 lakhs per annum for the contribution in case of interest income on employee contribution in various PFs. This new proposal will apply to the PF Contribution to be held on or after 1 April 2021. This means that only the interest income from the contribution of up to Rs 2.5 lakh per annum in PF will be tax free. This will mainly affect high-income employees. The common man will not be affected by this change and hence EPF is still an attractive option for him.
Read also: Now the amount received on maturity of ULIP is not tax free, know details
Returns and Pensions
Returns under PF are fixed annually with the interest rate declared by the government. However, the return on NPS is dependent on NAV which may rise or fall. Thus PF provides safety and assured returns while NPS provides high risk and high returns. Both options provide tax benefits and good returns for the common man. The option between NPS and EPF depends on the knowledge of taxpayers, the risk appetite of the employee, the option used by the employee, return, security, lock-in, maturity etc.