According to the PFRDA circular, which details the fund transfer process, you may only transfer funds from your PF or superannuation to NPS once in order to qualify for tax exemption. This modification was proposed by Arun Jaitley in his 2015 Budget speech and will help employees who are paid a salary.
The interest rate that applies to EPF contributions for FY 2022–2023 is 8.1%.
Important Factors for Transferring Your EPF Balance to NPS
You must have a Tier 1 account. Through Points-of-Presence, your company, or online at https://enps.nsdl.com/eNPS/NationalPensionSystem.html, you can open an NPS account. Points of presence include banks and other organisations that have registered with the PFRDA as POPs.
Prior to beginning the balance transfer from EPF to NPS, your employer must obtain the transfer form.
The employee shall seek a letter specifying the amount transferring from the fund to be credited to the employee's NPS Tier 1 account. The employer of the Points-of-current-Presence must note the transfer from the PF/Superannuation fund in the uploading comment.
The recognised PF/Superannuation fund may issue a demand draught (DD) or check in your name along with the following information if you work for the government: Nodal Office Name, Employer Name, and Permanent Retirement Account Number (PRAN).
You can make the check or demand draught payable to Name of Point of Presence, Collection Account-NPS Trust-Subscriber Name-PRAN if you work for a private company.
According to the Pension Fund Regulation and Development Authority, the transferred monies from EPF to NPS won't be processed and won't be taxed as a result. Therefore, you are not qualified to deduct the transferred sum from your income under Section 80CCD. This provision only permits a deduction for a new investment; transfers are not permitted.
How will NPS use your funds?
Workers' Provident Fund invests your money in bonds, debt instruments, and other investments. EPF has provided an annual interest rate of 8.5 percent over the previous three years. Yet, NPS does not guarantee customers a certain amount of money back. The return offered under the NPS Trust's different schemes has fluctuated from 7.86% to 14.30% since its inception, according to its FY16 Annual Report.
How does the EPF manage withdrawals?
If an employee leaves the employment agreement and does not take any other work within two months with an employer who is registered under EPF, the entire fund balance in the employee's EPF account may be withdrawn in one lump amount. The employee sees this as a smart move because it offers them quick access to money that they can use to start a business or for any other private purposes.
Yet, under NPS, a worker who has reached the age of 60 may take up to 60% of the fund's remaining balance in a single lump sum, with the remaining 40% going to an annuity plan for a monthly pension. If you want to withdraw your EPF balance prior to five years of employment, you will be taxed. If you take more than Rs. 50,000 out of your EPF account, TDS will be deducted. There was a Rs. 30,000 cap in place till October 2016. The new EPF withdrawal regulations were covered in a previous article.
Are there any tax benefits?
If the employee has worked continuously for five years or longer, EPF withdrawal is totally tax-free, in contrast to NPS withdrawal, which is only tax-free up to 60% (or 40% until FY 2018–19) of the total sum. EPF, which is viewed as a retirement savings scheme, has helped employees. Only time will tell if NPS will be well-liked by the workforce; it is still gaining traction.
Before the transfer, there are certain challenges.
Even though the PFRDA has made the transfer process clearer, not everyone is presently able to take part. If you retire after turning 55, the EPF programme outlines the conditions under which an EPF withdrawal is allowed. if you are an immigrant from India or if you are totally or permanently disabled.
When a subscriber chooses NPS, they leave the Employees Deposit Linked Insurance and Employees' Pension Plan (EPF). What will happen to the money that is taken out for EPS still has to be clarified.
Our opinion: As NPS is still relatively new, it needs greater clarification to draw in workers. EPF is the best option up till then!