Eligibility and Contributions
The EPF is a mandatory retirement savings scheme for salaried employees in the organised sector. Both you and your employer contribute 12% of your wages each month. Contributions on wages above a statutory ceiling of ₹15,000 per month are considered voluntary.
In contrast, the NPS is a voluntary scheme open to all Indian citizens between the ages of 18 and 85, including salaried and self-employed individuals. It offers greater flexibility in contribution amounts, with a minimum annual contribution of just ₹1,000 to a Tier I account.
Investment Style and Returns
EPF is positioned as a low-risk option. The Employees' Provident Fund Organisation (EPFO) invests funds primarily in government securities and debt instruments, offering a fixed interest rate declared annually by the government. For the 2025-26 financial year, the recommended rate was 8.25%. NPS, on the other hand, provides market-linked returns. It allows you to invest across asset classes like equities, corporate bonds, and government securities. This exposure to equities gives NPS the potential for higher long-term returns, which have historically ranged from 8% to 11% or more, but it also comes with higher market risk.
Tax Benefits on Your Investment
Both schemes offer attractive tax benefits, primarily for those under the old tax regime. EPF contributions fall under the overall ₹1.5 lakh limit of Section 80C. NPS provides this same benefit under Section 80CCD(1), plus an exclusive additional deduction of up to ₹50,000 under Section 80CCD(1B). This gives NPS an edge, allowing for a total deduction of up to ₹2 lakh on self-contributions. Furthermore, employer contributions to NPS are also deductible up to 10% of salary for private employees, a benefit available in both the old and new tax regimes.
Rules for Partial Withdrawal
When it comes to accessing your funds before retirement, EPF offers more liquidity. You can make partial withdrawals for specific reasons such as medical emergencies, home purchase or construction, and education, often without penalty after five years of service. NPS has stricter rules. It allows partial withdrawals of up to 25% of your own contributions after a lock-in period of three years, and only for specific, defined purposes. This makes EPF a more flexible option if you anticipate needing funds for major life events before you retire.
Maturity and Receiving Your Corpus
The rules at retirement are a major point of difference. With EPF, you can withdraw your entire accumulated corpus as a tax-free lump sum after five years of continuous service, typically upon reaching retirement age. NPS operates differently. At retirement (age 60), you can withdraw up to 60% of the corpus as a tax-free lump sum. The remaining 40% must be used to purchase an annuity, which provides a regular monthly pension. This pension income is then taxable according to your income tax slab. This mandatory annuitisation is designed to ensure a steady income stream throughout your retirement years.
