Transfer from EPF to NPS

Need/Benefit of switching EPF to NPS

EPF and NPS both are the retirement saving scheme and have a provision of pension. Then, what is the need for EPF transfer to NPS? I am listing the reason.

Shift to a government company

 When you work in a private company, you have to subscribe to the EPF. But if you switch to the government department, you have to contribute to the NPS. In this case, your EPF balance is not used for retirement saving. Often you have to withdraw it citing unemployment for 2 months. Also, EPF withdrawal may be subject to tax if you have not completed 5 years in the private job.

Want Better Return

EPF is designed to give a retirement corpus to organized sector workers. It tries to keep your investment safe along with a decent return. Whereas NPS gives you a chance to get a better return with some risk. It invests a greater proportion in the share market. That is why NPS may be a better option for those who want to build wealth by taking some risk.

More Transparency

Normally EPF gives more return than the bank deposit. However, you don’t know how did EPF earn. where it invests? Whereas in the NPS, every investment is transparent. You know the mutual fund plans where your money is invested. Every week you get to know the NAV of your mutual fund plan.

Active change of Portfolio

If you want to actively manage your retirement corpus then NPS is a better option. In the NPS you can change your asset allocation twice in a year. Thus you can affect the return of your NPS investment. It is not possible with the EPF.

Extra Tax Benefit

The government has given the extra tax benefit to the NPS (80CCD-1B). You can get an extra tax deduction of up to 50 thousand because of the NPS. This tax deduction of 50 thousand is over and above the 80C limit.

Issues of transferring EPF to NPS

EPF to NPS switch was not very easy. It is not like transfer of money from one account to another account. Following are the hurdles of this switch.

  1. EPF withdrawal before completing 5 years in service becomes taxable. The EFPO deducts tax before giving you the corpus.
  2. EPFO does not permit premature withdrawal. Neither it recognizes the withdrawal for NPS.

The given process Involves only acceptance of EPF corpus into an NPS account. The PFRDA has released these steps.

Open NPS Tier-I Account

To receive the EPF amount, you must have an NPS account. You can open NPS account through your employer. Those people who don’t have an employer or NPS facility with them can open an NPS account through the POP. There are many POPs available. An online NPS account opened through the e-NPS is also eligible for getting the EPF balance.

Submit Request To Employer

If you are a government or private sector employee, you have to approach the recognized provident fund or superannuation fund. It can be done through the employer.

EPFO or Trust Would Process Application

The provident fund or superannuation fund initiate the fund transfer process. After the due process, it would release the EPF corpus.

Cheque or DD Issuance

The cheque or demand draft would be issued in the name of either of the following.

In the case of government employee: Nodal Office Name (PAO or CDDO Name)<>Employee Name <> PRAN

In case of Subscriber is a private employee or self-employed:  POP collection account-NPS trust <>Subscriber Name<>PRAN

Get Letter of EPF Transfer

The EPFO or Trust would also issue a letter telling about the EPF to NPS transfer. You have to get this letter and submit to the present employer or POP. This letter is a proof that your lump sum NPS contribution belongs to the EPF account.

The Contribution into NPS account

Once you submit the EPF transfer letter along with the cheque, the NPS nodal office or POP updates your NPS account with the latest contribution.

Points To Note

The EPF transfer amount would not be eligible for the tax deduction as it is not the original investment. It is just a transfer so does not enjoy any extra tax benefit.

You must have an active NPS account. The EPF transfer amount would go into Tier-I account.

The EPF transfer amount should be routed through the employer or POP-PS. The NPS subscribers have to go to POP-SP for submitting EPF cheque/DD.

Unlike EPF, you would not get the whole corpus after the retirement, rather you would get only 40% amount. The 40% -60%  amount would be used to give you a regular pension. You can get 20% of the amount in 10 installments to the age of 70.

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