EPF vs NPS: Which Retirement Plan Is Best For Employees In Their 20s and 30s? Experts Explain – News18
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EPF and NPS are key retirement plans in India. Let’s understand from experts which is a good option in the long-term for employees of 20s and 30s.
NPS offers flexibility in contributions, with employers able to contribute up to 14% of the basic salary without requiring employee contributions.
EPF Vs NPS – Which Is Better For Long Term: All employees should commence their retirement planning as early as possible. Considering all avenues is better to avoid regrets later in life, especially at the time of retirement. It is important to have a secure regular income to cater to all your needs and requirements.
Employee Provident Fund (EPF) and National Pension Scheme (NPS) are two options available for employees in India. While EPF is mandatory for the organised sector where the average salary of the employee is above Rs 15,000, NPS is voluntary for employees.
Both have their pros and cons and depend on various factors to determine whether to opt for them or not.
What Are EPF and NPS?
EPF is basically a retirement benefit scheme for organised sector employees where both employee and employer contribute a certain amount each month. The Employee Provident Fund Organisation manages the money by offering a specified interest rate. EPF is a stable, debt-oriented option that offers a fixed interest rate and suits salaried employees with a conservative investment approach.
NPS, on the other hand, is managed by the Pension Fund Regulatory Authority of India (PFRDA). It is a voluntary, market-linked retirement scheme, with returns depending on equity and debt market performance.
Which Is The Better Long-Term Option For Someone In Their 20s Or 30s?
While it carries market risks, NPS offers higher return potential over the long term, making it a suitable choice for those in their early 20s or 30s with a long investment horizon, said Shridhar G S, CEO and Executive Director, Way2Wealth Brokers.
“Therefore, if one has to choose between EPF or NPS, NPS may be preferred for those seeking higher long-term growth potential, while EPF remains a stable choice for risk-averse investors,” he added.
What Are The Tax Benefits Of EPF And NPS?
Kinjal Bhuta, secretary, Bombay Chartered Accountants’ Society (BCAS) remarked that any contribution made towards EPF by the employer for its employees is allowed as a deduction under section 80C; however, that deduction is allowed only under the old regime of taxation.
Bhuta added that the new regime of taxation does not allow any deductions under Chapter VIA like EPF etc. to salaried taxpayers except for contributions made by employers for their employees under the National Pension Scheme as per section 80CCD(2) of the Act.
“As per this section, contribution towards NPS by the employer would be allowed as a deduction from income up to 14% of salary if the employer is the Central or State government and up to 10% of salary in the case of private sector employers,” she said.
She concluded that if a salaried taxpayer chooses to have NPS over EPF with his employer, he will have tax benefits under the new regime of taxation because of liberalised slabs and tax rates. “However, these benefits are specifically from a tax perspective, one may have to look into the returns and other features of EPF and NPS individually before arriving at any decision,” he remarked.
Sridhar explained that contributions towards NPS, up to 14% of the (Basic salary+DA) under the new tax regime, are exempt from taxes. The combined employer contribution to EPF, NPS, and superannuation is subject to a ₹7.5 lakh annual limit for tax benefits.
Another lesser-known benefit, Sridhar added, is that at the time of retirement, 60% of the total NPS corpus can be withdrawn as a tax-free lump sum.
Is It Advisable To Opt For Both EPF And NPS If The Employer Offers Them?
Sridhar said that opting for both EPF and NPS can be beneficial as they complement each other in building a well-rounded retirement corpus.
“EPF provides a guaranteed, fixed return with tax-free interest and full withdrawal at retirement, while NPS provides potentially higher returns with a disciplined investment approach, allowing you to withdraw a maximum of 60% of the corpus as a lump sum,” he added.
Disclaimer: The views and investment tips by experts in this News18.com report are their own and not those of the website or its management. Users are advised to check with certified experts before making any investment decisions.
