There are two types of funds viz. Employees’ Provident Fund (EPF) and National Pension System (NPS) both are count as two prominent retirement savings schemes in India. While EPF is an essential savings scheme for salaried employees in the organized sector, NPS is a voluntary long-term investment plan designed to provide financial security post-retirement. Many individuals consider transferring their EPF corpus to NPS for greater flexibility, market-linked returns, and tax benefits.
In this comprehensive guide, we will take you through the process of transferring EPF to NPS, the eligibility criteria, benefits, and key considerations and the various other aspects which is very necessary to know in regards of financial terms.
Understanding EPF and NPS
Employees’ Provident Fund (EPF)
EPF is a government-backed retirement savings scheme regulated by the Employees’ Provident Fund Organization (EPFO). It requires employees to contribute 12% of their basic salary and dearness allowance, with an equal contribution from the employer. The accumulated corpus earns interest, and withdrawals are subject to specific conditions.
National Pension System (NPS)
NPS is a market-linked pension scheme managed by the Pension Fund Regulatory and Development Authority (PFRDA). It allows various individuals to invest in equities, corporate bonds, and government securities. At retirement, subscribers can withdraw a portion of the corpus as a lump sum and must invest the remaining amount in annuities for a regular pension.
Why Transfer from EPF to NPS?
Many employees consider transferring EPF to NPS due to the following benefits:
- Market-Linked Growth: NPS investments have the potential to generate higher returns than the fixed interest rate of EPF.
- Better Retirement Planning: NPS provides an option to receive a steady pension post-retirement.
- Tax Benefits: Contributions to NPS qualify for tax deductions under Section 80CCD(1), 80CCD(1B), and 80CCD(2) of the Income Tax Act.
- Flexibility in Investment Choices: NPS allows individuals to choose their asset allocation between equity, corporate bonds, and government securities.
- Portable Across Jobs: Unlike EPF, which is linked to an employer, NPS remains with the individual even when changing jobs.
Eligibility Criteria for EPF to NPS Transfer
To transfer funds from EPF to NPS, an employee must meet the following criteria:
- Must have an active NPS Tier-I account.
- The EPF corpus should be withdrawable, meaning the individual must no longer be employed by an EPF-registered employer.
- The transfer should be made voluntarily by the EPF account holder.
- The transfer must be in compliance with PFRDA and EPFO guidelines.
Step-by-Step Process for EPF to NPS Transfer
Step 1: Open an NPS Account (If Not Already Opened)
To initiate an EPF to NPS transfer, you must have an active NPS Tier-I account. If you don’t have one, you can open it through the following means:
- Online via the eNPS portal (https://enps.nsdl.com/) or authorized banks.
- Offline through Point of Presence (PoP) service providers like banks and financial institutions.
Step 2: Request for EPF Withdrawal
- Log in to the Unified Member Portal of EPFO.
- Select “Claim (Form-31, 19 & 10C)” under the “Online Services” tab.
- Fill in the withdrawal details and mention that the funds are being transferred to NPS.
- Provide bank details and upload the required documents.
- Submit the withdrawal request and then wait for approval from the employer and EPFO.
Step 3: Obtain a Demand Draft (DD) or Cheque
- Once the EPF claim is processed, the EPFO will issue a Demand Draft (DD) or Cheque in Favour of “Trustee Bank – National Pension System”.
- The DD will be sent to your registered address or the NPS account address, as specified during the withdrawal process.
Step 4: Submit Transfer Request to NPS
- Visit the nearest NPS Point of Presence (PoP) branch.
- Submit the EPF withdrawal receipt and Demand Draft (DD) to the PoP service provider.
- Fill out the NPS deposit slip, mentioning your PRAN (Permanent Retirement Account Number) and details of the transferred amount.
Step 5: Confirmation of Transfer
- The PoP provider will process your request and deposit the amount into your NPS Tier-I account.
- You will get a confirmation message or email from CRA (Central Recordkeeping Agency).
- Log in to the NPS portal to check the credited amount under your account.
Tax Implications of EPF to NPS Transfer
The transfer of EPF to NPS is considered a non-taxable transaction, as per the Income Tax Act of 1961. The transferred amount will not be taxed at the time of transfer. However, taxation will apply when the amount is withdrawn at retirement:
- 60% of the corpus will be withdrawn tax-free.
- 40% of the corpus must be used to purchase the annuity, which is taxable as per the individual’s income slab.
Key Considerations Before Transferring EPF to NPS
- Loss of Fixed Returns: EPF offers a fixed interest rate (8-8.5% per annum), whereas NPS returns depend on market performance.
- Lock-In Period: NPS investments are locked until the age of 60, whereas EPF allows partial withdrawals under certain conditions.
- Employer Contributions: Employers do not contribute to NPS like they do in EPF.
- Investment Risks: Since NPS is market-linked, there is an element of risk, unlike the assured returns of EPF.
- Tax Planning: Consider how the transfer affects your tax benefits as per Section 80C, 80CCD(1), and 80CCD(2).
Conclusion
Transferring EPF to NPS can be a very well -managed move for those seeking higher returns and a structured retirement plan. However, it is very much essential to carefully evaluate and determine your financial goals, risk appetite, and tax implications before proceeding and various other require aspects.
By following the step-by-step process we have discussed above outlined in this article, you can easily transfer your EPF corpus to NPS, enjoy a well-planned retirement investment strategy, plan a better tomorrow and avail the various benefits of the government schemes. Always take caution to complete the transaction in a proper manner. If you need further assistance, consider consulting a financial advisor to ensure a smooth transition so that you can make wise decisions for your better future.
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Frequently Asked Questions
1. Can I transfer only a part of my EPF corpus to NPS?
No, the entire EPF corpus must be transferred if you opt for an EPF-to-NPS transfer.
2. How long does the transfer process take?
The process can take anywhere duration between 30 to 90 days, depending on EPFO and NPS processing times.
3. Can I transfer my employer’s EPF contribution to NPS?
No, only the employee’s share of EPF can be transferred to NPS.
4. What happens if I change jobs after transferring to NPS?
NPS is portable across employers, so there is no impact on your contributions or withdrawals.
5. Can I withdraw my NPS funds before retirement?
Partial withdrawals are allowed under certain conditions, but the majority of the corpus remains locked until retirement (60 years of age).
