Key Highlights In Transferring Your EPF Balance To NPS

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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 salaried professionals.

Latest Update

The interest rate applicable to the EPF contributions is 8.25% for FY 2023-24.

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 the e-NPS 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 a letter stating the amount transferred from the fund to be credited to the employee’s NPS Tier 1 account. The present employer of the Points-of Presence needs 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 a 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, a cheque or demand draft can be made under the name of: Point of Presence, Collection Account-NPS Trust – Subscriber Name – PRAN.

The Pension Fund Regulatory and Development Authority has stated that transferred funds from EPF to NPS will not be treated and hence, not taxed. You also can’t claim the deduction under section  80CCD for the transferred amount to NPS. Under this section, you can claim a 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 has offered an annual interest rate of 8.5%. NPS however, does not offer any guaranteed return to the subscribers. 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up any other employment for two months with an employer who is registered under EPF, entire fund balance in EPF can be withdrawn in lump-sum.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 a maximum of 60% of the fund balance in a lump sum, and the rest of the fund goes to an annuity plan for a monthly pension. If you choose to withdraw EPF before completing 5 years of service, your EPF balance will be taxed. If you’re withdrawing more than Rs. 50,000, TDS on EPF will be deducted. Earlier 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 years 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 a retirement savings scheme. NPS is still gaining popularity, and only time can tell if it will gain much popularity among employees.

Fair Share Of Hurdles Before You Can Transfer

Though the PFRDA has clarified the transfer process, it is 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, the subscriber exits from the Employees Deposit Linked Insurance and Employees’ Pension Scheme (EPF). However, there still has to be more clarity on what will happen to the amount that is deducted towards EPS.

Our Take

 We would say that NPS provides market-based returns. However, EPF provides guaranteed returns that are also tax-free. To understand further refer to our articles mentioned below.

1. Taxability on Employer’s contribution to NPS
2. National Pension Scheme
3. EPFO 
4. NPS vs PPF
5. Taxation Of Interest On EPF Contribution Exceeding Rs. 2.5 Lakh