A subscriber, under the National Pension System (NPS), can build a retirement corpus and enjoy tax benefits simultaneously, up to Rs.1.5 lakh (as per Section 80C) and an additional up to Rs.50,000 as per Section 80CCD (1B). While earlier, NPS was reserved only for government employees, it became open to all in 2009. Besides central and state government employees, anybody can now subscribe to the NPS.

That being said, earlier, you could not transfer EPF balance to NPS. It was the 2016-17 budget that fixed this problem, making it possible for you to transfer funds from a recognised EPF to NPS online.

The provision to transfer your EPF balance to NPS has a multitude of benefits. These are:

  • Better returns leading to wealth accumulation
  • Increased transparency
  • Active management of retirement corpus
  • Extra tax benefits up to Rs.50,000
Following the proposal to transfer EPF balance to NPS online, the Pension Fund Regulatory and Development Authority (PFRDA) issued a circular that clarified the transfer process. Stated below is the detailed procedure:

Essential steps to transfer EPF to NPS online

  • As a prerequisite, you need to have an active NPS Tier-1 account. This can be done through your employer (in case NPS has already been implemented). Alternatively, you can do it through a POP (point of presence) or the eNPS portal. You can log in to npstrust.org.in to open an NPS account.
    Point of presence (POP) refers to banks and financial firms acting as the interface for NPS-related transactions.
  • To initiate the transfer, a request for transfer will have to be made to the recognised EPF, through your current employer. This requests the transfer of EPF balance to your NPS account.
  • Upon receipt of the application, the recognised fund will initiate the balance transfer from EPF to NPS.
  • For government employees, the Demand Draft (DD) or cheque will be issued in the name of the NPS nodal office. For private-sector employees and other self-employed professionals, cheque or DD will be issued in the name of the POP collection account.
  • The recognised provident fund then issues a letter intimating the employer about the transfer to the employee’s Tier 1 NPS account. If your balance was routed through the POP, ensure they mention the same in the ‘remarks’ section of their software.
  • After you submit the EPF transfer letter and cheque, the POP or NPS nodal office will accordingly update your NPS account.

How NPS allocates your funds?

Employees’ Provident Fund (EPF) invests your money in government securities, debt securities and bonds. On the other hand, NPS does not offer any guaranteed return to subscribers. According to the NPS Trust Annual Report, FY 2016, returns under various schemes have ranged between 7.86 – 14.3%.

Withdrawal in EPF

EPF offers easy liquidity to employees who terminate the contract and then remain unemployed for two months. It allows them to withdraw in lump-sum the entire EPF fund balance. This is a beneficial move, considering the individual can utilise the money to fund a new venture or other personal objectives.

However, if you withdraw prior to the completion of five years in service, a tax will be levied on the EPF balance. Should you withdraw more than Rs.50,000; TDS will be deducted.

What about tax benefits?

Withdrawal from EPF is tax-free, considering you have completed five years in service. On the other hand, withdrawal from NPS enjoys tax benefits up to 40% (of the corpus).

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DISCLAIMER

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.



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