Retirement Benefit Schemes, Eligibility, Contributions

Government employees contribute to the National Pension System (NPS) whereas private sector employees have an Employees Provident Fund (EPF) account. There are certain differences between both of them like Expected returns on NPS are greater but PF provides more stability in returns.

Difference between National Pension System (NPS) and Provident Fund (PF)

The National Pension Scheme (NPS) and the Employee Provident Fund (EPF) are both retirement savings options that differ in a number of ways, including:

• Eligibility:
  • NPS is open to all Indian citizens between the ages of 18 and 70, including self-employed people and non-resident Indians.
  • EPF is only for salaried employees in the private sector.
• Returns:
  • NPS offers market-linked returns as funds are invested in various types of investment instruments like government bonds, corporate debt and equity, shares, etc.
  • EPF offers guaranteed tax-free returns in the form of annual interest. For the financial year 2024, it is fixed at 8.25%.
• Contributions:
  • NPS requires a minimum annual contribution of Rs 6,000 from employees for Tier-1 Accounts.
    • For Tier-2 Accounts there is no minimum annual contribution, but a minimum balance of Rs 2,000 must be maintained at the end of each financial year.
  • EPF requires both the employee and employer to contribute 12% of the employee’s salary.
• Tax benefits: (Under Income Tax Act)
  • NPS – Up to Rs. 1.5 lakh per annum as long as contribution does not exceed 10% of basic salary or 20% of gross income. An additional tax deduction of Rs. 50000 is also available.
  • EPF – Tax Benefits of up to Rs. 1.5 lakh per annum.
• Withdrawals:
  • NPS – 25% of the contributions can be withdrawn after staying invested for 3 years for specific reasons
  • EPF – Partial withdrawals Allowed:
    • Employees who are out of employment for a month (up to a maximum of 75%)
    • Other pre-specified reasons like education, housing, or medical emergencies.

Sharing is caring!