Today, seeking at the selection of investment possibilities, investors are spoiled for decision. The National Pension System (NPS) and the Employees’ Provident Fund (EPF) are the two most prevalent investment options for staff that provide dual benefit of tax saving as nicely as fantastic returns.
Here are some essential points for consideration though deciding in between NPS and EPF.
Contributions to EPF
Provident Fund law has been present for quite a few decades and is mandated to be presented by an employer to its staff. It is vital for an establishment employing more than 20 staff to contribute towards EPF for staff with fundamental salary significantly less than INR 15,000 p.m. Employees drawing fundamental salary more than this threshold can also opt to contribute.
The investment in PF is monitored via a set of guidelines that make sure safety as nicely as steady earnings.
EPF contributions can be performed by all irrespective of the nationality of the employee. Minimum contribution to EPF is at 12% of PF salary which is the aggregate of fundamental salary, dearness allowance, money worth of meals concession and retaining allowance. The contributions can be restricted to INR 1,800 p.m. (12% of INR 15,000) at the choice of the employee. The employee might also contribute one hundred% of his/her fundamental salary as a voluntary contribution to the EPF.
EPF would quickly be subsumed into the Code on Social Security which not only delivers coverage to a wider population but going forward, might also lead to contributions to the EPF on a greater quantity of wages.
Contributions to NPS
NPS on the other hand has been introduced in the final decade and is a pension-cum-investment scheme launched by the Government of India. Indian nationals and Overseas citizens of India card holders can invest in NPS.
NPS is a voluntary contribution scheme with only a minimum contribution of INR 500 in Tier I and INR 1,000 in Tier II accounts. There is a decision of equity, corporate debt and government bonds based on the danger preference of the investor. An person could be a member of NPS via his employer or join as an independent member and participate in the scheme.
A fast summary of tax implications / tax deductions out there to folks:
It might also be noted that the aggregate employer’s contribution to EPF, NPS and superannuation fund in excess of INR 7,50,000 is taxable in the hands of the employee.
Proposed alterations in the Budget
It is proposed in the Finance Bill 2021 that employee’s contribution to PF in excess of INR 2,50,000 per year would create taxable returns. This would mostly effect higher earning staff who are contributing on a greater fundamental salary or possessing voluntary contributions. Fortunately, the prevalent man would not be impacted by this alter and therefore for him EPF nevertheless is an desirable choice.
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Returns and pension
The returns beneath PF are fixed with the interest price announced by the government annually. However, the return on NPS is dependent on the NAV of the underline scripts which might rise or fall. Thus, though PF provides safety and assured returns, NPS provides higher danger and higher returns. Thus, for the prevalent man each possibilities provide tax positive aspects and fantastic returns.
The decision in between NPS and EPF depends on the understanding of the taxpayer, danger appetite of the employee, possibilities exercised by the employee, the returns, safety, lock-in, liquidity, maturity and so on.