EPF to NPS: Is it worth transferring your money?

Here are some guidelines as to whether Is it worth transferring your money from EPF to NPS ?:

Should you transfer money from EPF to NPSLately, the government has recognized the need of the individuals towards better retirement. This realization came on 6 March 2017; it permitted to transfer money from EPF to NPS. It is trying to provide you alternatives apart from the conventional EPF. It seems that government wants to promote the NPS as an ideal retirement planning tool. Simultaneously, it wants to render greater depths to the capital markets by increasing public participation. So, if you want to severe relations with the traditional EPF Account, here lies the route. Just transfer your EPF Account balance to NPS Account.

On the back of several queries received by the Finance Ministry about NPS, this move sees the light of the day. It perceives that the move would benefit employees in earning better returns on investment.


NPS started gaining momentum after its extension to all the citizens in 2009. Employees have begun perceiving it as superior to the EPF. There are several reasons for this attitudinal transformation. Compared to plain-vanilla EPF, NPS seems a pretty new investment haven to the employees. Whereas EPF offers a fixed rate of interest, NPS offers exposure to equity as one of the asset classes. Hence, employees think that with NPS the chances of building bigger corpus are high.

EPF is a much more tax-efficient product as compared to NPS. EPF enjoys the EEE status. It means contributions, interest accrued and withdrawals everything was tax-exempt. On the contrary, NPS doesn’t enjoy this status. NPS has got a deferred taxation mechanism. You would enjoy exemption during contribution and returns phase. But, upon superannuation, the lump sum in your hands would be taxed. From 1 April 2017 onwards, only 40% of withdrawals from NPS would be tax-exempt. It includes partial withdrawals as well as the lump sum that you would receive on maturity. Now it looks like a lot many employees would be flocking towards NPS.

Many employees despised the mandatory contributions feature of EPF. They were looking for a narrow escape from contributions. This move of fund transfer from EPF to NPS might please them. But NPS has got its set of rigidities as regards contributions. You need to contribute at least once in the financial year to NPS. Additionally, the minimum contribution per year has to be at least Rs 6000.

Upon attaining superannuation, there’s mandatory purchase of an annuity from the 40% lump sum received on maturity. That too; from one of the pension providers as specified by the PFRDA. Whether you need it or not, you have to avail that annuity feature. At least, such compulsions are not there in case of EPF.

So, before making hurried transfers, just pause and ponder. There are a few conditions that need to be kept in mind. You are allowed to transfer the EPF account balance to NPS only once in the entire working life. Such a transfer won’t be treated as your EPF contribution for the current year. Hence, you won’t be entitled to claim a tax deduction on the assigned amount.

However, there’s a brighter side of this regulation as well. Usually, an EPF withdrawal used to be clubbed in your income and was taxed. But as far as this transfer is concerned, the tax treatment would be quite different. A transfer from EPF to NPS won’t be regarded as your income of the current year. Thus, it will not be taxed.

Based on the facts, it looks like you would be better off staying invested in EPF. Still, if you have any thoughts of a transfer, then there’s a procedure for this.

Also read: Choosing between PPF, NPS and ELSS

Procedure of fund transfer from EPF to NPS

There’s a lot of commotion surrounding the manner of transferring EPF balances to NPS. The following procedure would make things smoother:

Procedure of fund transfer from EPF to NPS

1. Before embarking upon a fund transfer, you got to have an active NPS Tier-I account. There are many ways to open an NPS account. You may ask your current employer to institute your NPS account. Otherwise, you may do it online through eNPS portal or by visiting any Point of Presence (POP). These are the banks and other entities registered with PFRDA to open an NPS account.

2. Your request for fund transfer needs to be forwarded through the current employer to the PF Trust.

3. The Trust will initiate a transfer according to the provisions of the Trust Deed that read with the provisions of the Income Tax Act, 1961.

4. The manner of transfer depends on whether you are a government employee or private employee.

  If you are a government employee, the trust will issue a cheque in the name of Nodal Office. Along with that, the employee name and Permanent Retirement Account Number (PRAN) will also be mentioned.

 If you work in the private sector, then the trust will issue a cheque in favor of Point of Presence. Along with that, the employee name and Permanent Retirement Account Number (PRAN) will also be mentioned.

5. As soon as the Nodal Office or Point of Presence receives the cheque, it has to upload the funds in your NPS account. While your funds are being credited to NPS account, the Nodal Office or Point of Presence has to mention the source as PF arrears in the remarks column.


Final Words

You need to look into features of NPS and understand its financial implications. Your financial decisions need to be guided by a few considerations. Those are your financial goals, risk appetite and investment horizon. Additionally, you need to take into account your intermediate monetary needs. Overall, your circumstances dictate the choice of an investment product.

From that perspective, NPS won’t be a better alternative to EPF. NPS has got a lot of issues which makes it a not-so-good investment haven. The rigidities, illiquidity and limited equity exposure may prevent a rational individual from opting it. Instead, apart from NPS, there are other options like ELSS to get equity exposure and higher returns. Additionally, you may keep EPF as a debt component in your portfolio.

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