There are multiple differences between the EPF and the NPS, as both these scheme have their own benefits and drawbacks, especially when it comes to withdrawals.
When planning to save for retirement, EPF and NPS are the two investment instruments that come to mind instantly. It is generally suggested to make the best use of these products to get proper tax savings along with creating a good retirement corpus. It is important to understand that EPF and NPS serve different purposes as investment schemes. While EPF (Employee’s Provident Fund) has more of debt allocation, NPS (National Pension System) is mostly market-linked with a potential to beat inflation.
There are multiple differences between the EPF and the NPS, as both these scheme have their own benefits and drawbacks, especially when it comes to withdrawals. Find out how and under what circumstance you can make withdrawals under these investment options.
Here are the key differences between the NPS and EPF schemes with the withdrawal options:
National Pension System
In Budget 2019, the government had raised the income tax exemption limit on withdrawal from NPS corpus from 40 per cent to 60 per cent on retirement, or after reaching the age of 60. There are two types of accounts available to subscribers – Tier I (non-withdrawable) and Tier II (withdrawable). To open a Tier II account, the Tier I account should remain active. NPS subscribers on retirement can withdraw a lump sum of up to 60 per cent of the NPS corpus. The balance of 40 per cent needs to be invested in an annuity plan.
For partial withdrawals, you can only opt for it after the 10th year of subscription. Partial withdrawals from NPS were not allowed earlier. However, contributors can now withdraw up to 25 per cent of their savings. Withdrawals can be made for maximum up to 3 times during the tenure of a valid subscription, with a 5-year gap between each partial withdrawal and are allowed under specific reasons only. Partial withdrawals from NPS can be made under for child’s higher education, medical treatment of critical illness of self, spouse, children or dependent parents, fatal accidents, purchase or construction of first house, which will not be applicable if you are already a sole or joint owner of a residential house or flat, and child’s marriage. Note that interest earned on the account cannot be withdrawn, and only the principal amount will be available for partial withdrawal.
Employee’s Provident Fund (EPF)
Withdrawals under EPF is allowed under certain circumstances. To withdraw 100 per cent of your corpus, you must be at least 58-year old. At the age of 57 years, 1 year before retirement, you can withdraw up to 90 per cent of your corpus. Partial withdrawals are allowed for financial goals like education, house construction, and wedding planning. Or you can also make partially withdraw for any kind of medical issues.
For instance, you can withdraw up to 6 times your salary for medical treatment. For repayment of a house loan, up to 36 times of your salary can be withdrawn. For purchase of a site or plot of land up to 24 times of your salary can be withdrawn. For repairing and remodeling your home you can withdraw up to 12 times of your salary, and up to 50 per cent of the contributions made can be withdrawn up to 3 times for marriage or education.
At the time of retirement or at the maturity period, the amount is paid in a lump sum. Hence, try to plan the withdrawals in the right way to get monthly income till your life expectancy. Also, note that the interest earned and withdrawals are not taxed.