Shifting From Provident Fund To NPS

How Beneficial Is Shifting From Provident Fund To NPS

NPS i.e. National Pension System is an investment tool to create retirement corpus. These days, the pension regulator PFRDA is trying to encourage people to open their NPS accounts. In order to make it popular, PFRDA has also allowed the transfer of money, from Provident Fund to NPS. If you invest in NPS, you can enjoy tax benefits up to Rs 1.5 lakh under Section 80C and additionally up to Rs.50,000 under Section 80CCD(1B) of the IT Act. It means that you have the option to make tax free investment of up to Rs. 2 lakh per year in NPS. But if your 80C investment options are already exhausted, you can still invest up to Rs. 50,000 under section 80CCD(1B).

Provident Fund To NPS

Govt. Allows Shifting From Provident Fund To NPS

Government has allowed individuals to choose between the Employees’ Provident Fund (EPF) and the National Pension System (NPS). So you can ask your employer to open an NPS account instead of EPF account as well. Moreover, the transfer of money from recognised Provident Fund to NPS is also tax free. Broadly there are two types of recognised provident funds. First one is covered under the EPF Act and it includes the establishments that run their own provident fund trusts. The second category does not come under the EPF Act and is guided by the income-tax Act. The examples of this category are public sector banks and embassies. EPF is common among salaried employees, most of whom make their monthly contribution to the Provident Fund. Every month, 12% of their salary goes to the EPF and the employer contributes with an equal amount. The EPF authority declares a rate of interest every year and the money lying in EPF account compounds at that rate.

Also Read: Should You Withdraw PF After Leaving Job?

Process Of Transfer From Provident Fund To NPS

The process to transfer the money from Provident Fund to NPS has been described in detail by PFRDA. These are the parts of this process:-

  • First of all you need to have an NPS account, either an individual account or a corporate NPS account. You can open an NPS account through your employer, Points-of-Presence, or online through eNPS portal: https://enps.nsdl.com/eNPS/NationalPensionSystem.html. Points of Presence refers to banks or any other entities registered as POPs with PFRDA.
  • You then need to approach your current employer and request for transferring the money from Provident Fund to NPS account.
  •  In case of government employees, the employee should request the PF/Superannuation fund to issue a letter to his present employer. It should be mentioned that the amount is being transferred from the Provident Fund To NPS Tier-1 account of the employee.
  • In case of private sector employees, the employee should request the recognised PF/superannuation fund to issue a letter to the present employer/PoP as the case may be. It should be mentioned that amount is being transferred from the Provident Fund To NPS Tier-1 account of the employee.
  • The recognised PF/Superannuation trust will have to initiate transfer of the fund as per provision of the trust deed and the provision of the Income Tax Act.
  • The POP will get the amount collected and the same has to be uploaded in the NPS account of the subscriber.

Also Read: How Can You Check Your PF Balance?

Tax Treatment On Transfer From Provident Fund To NPS

PFRDA has pointed out that the amount transferred from recognised Provident Fund To NPS will not be treated as income of the current year and is hence not taxable. Further, the transferred fund will not be treated as contribution of the current year by employee/employer and accordingly the subscriber would not make IT claim for it.

2 Important Points Before Shifting From Provident Fund To NPS

  1. Remember that even if you had opened an NPS account online without a PoP, for the purpose of transfer of money, a PoP is needed.
  2. If you want the employer’s contribution in NPS, then you will need to shift your personal NPS to the corporate NPS account.

Also Read: How Can You Easily Withdraw PF Money?

Should You Think About Shifting From Provident Fund To NPS

Before taking this decision, you should keep in mind the following three factors:-

  1. Return on Investment:- Employees’ Provident Fund invests your funds in government securities, bonds, debt securities, etc. Every year EPFO declares the annual interest rates on the fund balance. On the other hand, NPS does not offer any guaranteed return to the subscribers. But since the inception of NPS, the return offered under its various schemes has ranged from 7.86% to 14.30%.
  2. Withdrawal Facilities:-As an employee, if you leave your job and do not take up any other employment, entire fund balance in EPF can be withdrawn in lump-sum. But under NPS, an employee who is 60 years or older can withdraw maximum 60% of fund balance in lump-sum and the rest of the fund goes to annuity plan for monthly pension.
  3. Tax Benefits:- Withdrawal from EPF is fully tax free, if the employee has served continuously for five years or more. But NPS withdrawal is tax free only up to 40% of the total amount.

My suggestion to you is that you should continue investing in EPF. If you are interested in a separate retirement plan, you should open NPS. But at this point of time, shifting from Provident Fund to NPS doesn’t seem a great idea. If you do have any query in your mind regarding PF or NPS, just ask me. I will be happy to help you.

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