New Delhi: If you are doing retirement planning then Employee Provident Fund (EPF) and National Pension Scheme (NPS) are the most popular retirement planning options. Both the schemes are government-backed and offer tax benefits to the subscribers. Under certain conditions, EPFO allows a partial withdrawal.
Whereas in the case of the National Pension Scheme, there are two types of accounts- the NPS Tier-I account and the NPS Tier-II account. Tier-I is a primary account with comes with a lock-in period, while Tier- II is an optional account with no lock-in periods.
Given below are the key differences between the Employee Provident Fund or National Pension scheme-
1. In the EPF account, the employee and employer make an equal contribution to EPF account. Members contribute 12 per cent of their basic salary and a similar amount is contributed by their employer towards EPFO. Out of this 8.33 per cent goes to EPS subject to a cap of Rs 1,250 per month and the remaining amount is deposited in EPF. However, NPS is a voluntary contribution scheme where the employee contributes 10 per cent of his basic salary (including DA as a mandatory monthly contribution) and an equal amount is contributed by the employer.
2. Central Board of Trustees fixes the interest rates on the EPF for the year. The government has approved an 8.65 per cent interest rate on EPF for 2018-19. In the case of NPS, as it is a market-linked product, the performance of your portfolio depends upon the fund and the performance of the equity and debt markets
3. The contribution to EPF qualifies for deduction under Section 80C under the Income-Tax Act up to the limit of Rs 1.5 lakh. While NPS subscribers can avail a deduction of Rs 2 lakh in total under Section 80 CCD (1) section 80 CCD (1B) of the Income Tax Act. An employee can claim a tax deduction on the employer’s contribution of up to 10 per cent of the basic salary including the dearness allowances (DA).