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Key Highlights in Transferring Your EPF Balance to NPS

Updated on: Jan 13th, 2022


7 min read

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In the circular, PFRDA details the process for the fund transfer and asserts that the transfer of funds from your PF or Superannuation to NPS can be done only once for tax exemption benefit. This move was proposed by Arun Jaitley in his 2015 Budget speech, which is beneficial for the salaried professionals.

Latest Update

The interest rate applicable to the EPF contributions is 8.1% for FY 2022-23.

Highlights in transferring your EPF balance to NPS

  • You need to have a Tier 1 account. You can open an NPS account through your employer, Points-of-Presence, or online through eNPS portal: (Points of Presence refers to banks or any other entities registered as POPs with PFRDA).
  • You need to submit the transfer form to your employer, who will then initiate the balance transfer from EPF to NPS.
  • As an employee, you must request for a letter stating the amount transferring from the fund to be credited to the NPS Tier 1 account of the employee. The present employer of the Points-of Presence need to mention the transfer from the PF/Superannuation fund in the remark, while uploading.
  • If you happen to be a government employee, the recognized PF/Superannuation fund can issue the cheque or demand draft (DD) in the name of: Nodal Office Name – Employer Name – Permanent Retirement Account Number (PRAN).
  • If you’re employed in the private sector, the cheque or the demand draft can be made under the name of: name of Point of Presence, Collection Account-NPS Trust – Subscriber Name – PRAN.

The Pension Fund Regulatory and Development Authority has stated that the transferred funds from EPF to NPS will not be treated and hence, not taxed. You also can’t claim the deduction under the 80CCD for the transferred amount to NPS. Under this section, you can claim deduction for a new investment and not for a transfer.

How will NPS allocate your funds?

Employees’ Provident Fund invests your funds in government securities, bonds, debt securities, etc., and over the last three, EPF offer an annual interest rate of 8.5%. NPS however, does not offer any guaranteed return to the subscribers. The FY16 Annual Report of the NPS Trust shows that, since its inception, the return offered under its various schemes has ranged from 7.86% to 14.30%.

How does EPF deal with withdrawals?

As an employee, if you terminate the contract and do not take up any other employment with two months with an employer who is registered under EPF, entire fund balance in EPF can be withdrawn in lump-sum. This is a beneficial move from the employee’s stand point, as it provides easy liquidity to the employee who can use these funds to start a business or want to use it for any other personal reasons.

Under NPS, however, 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. If you choose to withdraw EPF before completing 5 years of service, your EPF balance will be taxed. If you’re withdrwaing more than Rs. 50,000, TDS on EPF will be deducted. Earlier to October 2016, the limit was Rs. 30,000. In a previous article, we have discussed the new EPF withdrawal rules.

Are there any tax benefits?

Withdrawal from EPF is fully tax-free, provided the employee has served continuously for five ears or more, whereas NPS withdrawal is tax-free only up to 60% (40% until FY 2018-19) of the total amount. EPF has been beneficial for employees as it is considered as a retirement savings scheme. NPS is still to gain popularity, and only time can tell if it will gain much popularity among the employees.

Fair share of hurdles before you can transfer

Though the PFRDA has clarified the transfer process, it is however not yet possible for all. The EPF scheme states specific circumstances when EPF withdrawal is possible if you take retirement after attaining 55 years of age. If you’re migrating from India, or if you’re having permanent or total disability.

Once you opt for NPS, it means that the subscriber exits from Employees Deposit Linked Insurance and Employees’ Pension Scheme (EPF). There still has be more clarity on what will happen to the amount that is deducted towards EPS.
Our take: We would say that NPS is still fairly new and needs to more clarity to attract employees. Until then, EPF is the way to go!

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