How to Transfer Money from EPF to NPS But Should You Do It

Pension Fund Regulatory Development Authority (PFRDA) has recently announced that you can shift your money accumulated in EPF to NPS account.  You will get this chance of transfer once in a lifetime. It sounds precious but should you change over your money accumulated in EPF to NPS? EPF gives you a lump sum return after your retirement whereas NPS gives you lump sum as well as monthly pension after retirement.

The transfer from Employee Provident fund to NPS is completely tax-free. Those who are interested about NPS and want to transfer their EPF corpus to NPS can get the chance.

EPF Vs NPS:

Employee Provident Fund (EPF) is a very good mandatory investment of salaried person. It is always saved many individuals during their retired life throughout its long tenure. Salaried people are ignorant about EPF but they use to receive a handsome amount after their retirement which amuses them again and again.

An individual uses to get the entire EPF corpus after the retirement from the service. EPF uses to fetch quite a good return for a long time. EPF also gives you the benefit of partial withdrawal in case of your vital requirements such as house construction, marriage, illness etc.

Also Read: Five Smart Ways How to Check EPF Balance Online Easily

National Pension Scheme (NPS) is a newly launched product compare to the EPF. Now the government employees are mandatorily under the NPS net. NPS was introduced to facilitate the customers with a monthly pension after the retirement.

The 60% corpus accumulated can be withdrawn lump sum after you attain the 60 years of age. And 40% corpus is to be used for buying an annuity. NPS gives you the tax benefit of extra RS 50,000 over and above 80C which is very beneficial who are in the 30% tax bracket.

How to transfer from EPF to NPS?

The PFRDA has described the process in its circular dated 6th march, 2017 how you can shift you EPF corpus to NPS.

For Government Employees:

  1. The person should have an NPS tier-1 account with any of the fund management companies. If you don’t have an account till now, you can open an NPS account easily through online via e NPS.
  2. The employee will request the provident fund/ superannuation fund trust to issue a letter to the present employer mentioning that the EPF corpus is to be transferred to NPS account of the employee.
  3. The provident fund/superannuation fund will issue a cheque/ draft to existing NPS account with the accumulated corpus.
  4. The present employer will add the fund with the existing NPS account with a remark that the fund has been transferred from EPF.

For Private Sector Employees:

  1. The person should have an NPS tier-1 account with any of the fund management companies. If you don’t have an account till now, you can open an NPS account easily through online via e NPS.
  2. The employee will request the provident fund/ superannuation fund trust to issue a letter to the present employer mentioning that the EPF corpus is to be transferred to NPS account of the employee.
  3. The provident fund/superannuation fund will issue a cheque/ draft to existing NPS account with the accumulated corpus.
  4. Here, in the case of private employees, the Fund management companies will collect the amount and upload the amount with the existing Tier-1 account of the subscriber.
Tax Implication:

The income from EPF is not treated as income for that financial year and hence there is no tax liability under the provisions of income tax act, 1961.  The transferred amount is not eligible for tax benefits also as you have not contributed by yourself towards the saving. You have only shifted the money to a different account.

Also Read: Withdraw PF Amount Partially for These Nine Reasons

In this regard, you would also like to know that EPF is a great tax-saving product. It is giving tax benefit at all the three steps, during investment, interest accumulation and maturity. In the other side, 20% of NPS maturity is taxable. You can avoid the tax by putting the money for buying the annuity along with 40% amount which is to be used for buying annuity compulsorily.

What should you do?

You have the option of transferring your EPF money to NPS. But should you do it? Will it be good for your retired life? You need to know which is the better financial product EPF vs NPS for your secured retired life. As I have already explained about the implication of income tax you can surely compare between the EPF and NPS. In the NPS, the liquidity is very less. If you are 30 years old, your money is invested for another 30 years which limits your plan of early retirement. Even if partial withdrawals cannot make it more liquid.

Moreover, you are investing in a product in which you will be compelled to buy an annuity which may not attract good return at that time. That is why the deferred annuity plans are not good for investment. Those who are investing in solely the debt products like PPF, EPF, bank deposits etc. can think of NPS as it has some equity exposure. Investors who are investing in the equity mutual funds may not think of NPS as an investment.

The government employees are mandatorily covered under NPS and they don’t have the option to select one of the product. The employees of the private sector can have the option but they should stick to EPF due to its liquidity and taxation benefit.

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