EPF vs NPS: Different Roles, Same Goal
EPF (Employees' Provident Fund) is mandatory for most salaried employees in India: 12% of your basic salary goes in, your employer matches it, and returns are guaranteed (currently around 8%) and tax-free at withdrawal. NPS (National Pension System) is voluntary, market-linked, and offers an extra 80CCD(1B) deduction of ₹50,000 over and above 80C. Both build your retirement corpus, but they work very differently: EPF gives fixed, predictable returns; NPS gives market-linked returns (typically 9–12% historically). The answer isn't either-or; you can, and often should, have both. EPF gives you a stable base; NPS gives you equity exposure and extra tax benefit. This guide compares EPF vs NPS: contributions, returns, tax benefits, liquidity, withdrawal rules, and when to use each.
Key Takeaways
- EPF: Mandatory for most salaried. 12% employee + 12% employer. ~8% fixed return. Tax-free. Withdraw at job change/retirement
- NPS: Voluntary. Market-linked. Extra ₹50K 80CCD(1B). Tier I locked till 60; partial withdrawal allowed
- Both: EPF for safety, NPS for extra tax saving and market-linked growth. Use both if you can
- Liquidity: EPF: withdraw on job change (tax-free after 5 yr). NPS: locked till 60, partial allowed
- Employer NPS: Some employers offer NPS; employer contribution up to 10% of basic. Extra corpus
EPF: How It Works
- Contribution: 12% of (Basic + DA) from you, 12% from employer. Employer splits: 3.67% to EPF, 8.33% to EPS.
- Returns: Declared annually by EPFO. Typically 8–8.5%. Guaranteed, not market-linked.
- Tax: Exempt–Exempt–Exempt. No tax on contribution, interest, or withdrawal (if 5+ years).
- Withdrawal: Full withdrawal on retirement, resignation after 5 years, or unemployment 2+ months. Partial for house/medical/education.
- Eligibility: Organisations with 20+ employees. Basic + DA up to ₹15,000 (mandatory); above that, optional.
NPS: How It Works
- Contribution: Voluntary. Min ₹500/year. No upper limit. Employer can add up to 10% of basic (if offered).
- Returns: Market-linked. Equity, corporate debt, government securities. Historical 9–12% (varies by fund).
- Tax: 80C up to ₹1.5L (Tier I). Extra 80CCD(1B) ₹50K. Withdrawal: 60% tax-free, 40% annuity taxable.
- Withdrawal: Tier I locked till 60. Partial withdrawal for house, education, medical (conditions apply). At 60: 60% lump sum, 40% annuity.
- Accounts: Tier I (80C, locked), Tier II (voluntary, no tax benefit, liquid).
EPF vs NPS: Side-by-Side
📊 Key differences
When to Prefer EPF
- Already mandatory: You get it by default. Max it via VPF if you want more in fixed income.
- Risk-averse: You want guaranteed returns, no market volatility.
- Job change likely: EPF is portable; you can withdraw on resignation (tax-free after 5 years).
- Need liquidity: Partial withdrawal for house, medical, education is easier than NPS.
When to Add NPS
- Extra tax saving: Use 80CCD(1B) ₹50K. Saves up to ₹15K tax at 30% slab.
- Want market-linked growth: Willing to take equity risk for higher potential return.
- Long horizon: You're 10+ years from 60. Time to ride volatility.
- Employer offers NPS: Free employer contribution. Don't miss it.
Can You Have Both?
Yes. EPF is mandatory for most; NPS is voluntary. Many salaried employees contribute to both: EPF for safety and liquidity, NPS for extra tax saving and market-linked growth. The 80CCD(1B) ₹50K is over and above 80C, so you can do full EPF + ELSS/PPF in 80C and still add ₹50K in NPS for additional deduction. Use our EPF and NPS calculators to project corpus under each.
Practical Action Plan: EPF vs NPS
- EPF is mandatory: You get it automatically. Consider VPF ( Voluntary PF) if you want more in fixed income
- Add NPS: If you can invest extra ₹50K, use 80CCD(1B). Saves up to ₹15K tax at 30% slab
- Employer NPS: If offered, don't refuse. Free employer contribution adds to corpus
- Run both: Use EPF Calculator + NPS Calculator. Combine in Retirement Planner for total projection
- Review annually: Asset allocation in NPS, VPF amount. Adjust as you approach retirement
Use Our Calculators
EPF Calculator: Project balance with salary growth. NPS Calculator: Project NPS corpus. Retirement Planner: Combine EPF, NPS, and other sources for total retirement corpus.
Disclaimer
NPS returns are market-linked and not guaranteed. EPF rates are declared annually. Tax rules as of current FY; verify with a CA for your situation.