Should you opt for both NPS and EPF in the new tax regime?

National pension system (NPS) and employee provident fund (EPF) are two key retirement schemes in India. While anyone can open an NPS account, one has to be in a full-time job to contribute to EPF.

Some employers now provide both, allowing employees to boost their retirement corpus while enjoying tax perks.

But should you opt for both? And how does it impact your take-home salary? Let’s break it down.

“Not all employers offer NPS, but if your employer does it, you can request them to make employer contribution a part of your salary. You can have it along with employer and employee contribution to EPF, if you are comfortable with reducing your in-hand salary. While NPS is optional, EPF is mandatory in most cases,” said Abe Abraham, partner, Cyril Amarchand Mangaldas.

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Employers can contribute up to 14% of your basic salary to your NPS account in the new tax regime. It is 12% in case of EPF. Employee contribution is mandatory in EPF to be eligible for the employer contribution, which is generally of the same amount.

NPS offers more flexibility—employees are not required to contribute to receive employer benefits. Employer contributions can vary, and employees can request to keep it at any level up to 14% of the basic salary.

Tax benefits unveiled

The employer contribution to NPS, which is part of your gross salary, qualifies for tax deduction under section 80CCD (2) of Income Tax Act when you calculate your tax liability.

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Gross salary is the total amount of money an employee receives before any deductions are made. It includes basic pay, bonuses and allowances.

Employer contribution to EPF, which could be part of your CTC, is tax exempt. However, if the aggregate contribution to NPS, EPF and other superannuation funds crosses ₹7.5 lakh per annum, the excess amount gets taxable.

“Employer EPF contribution is tax exempt up to a certain limit, be it part of the CTC or not, while employer NPS contribution gets a tax deduction under section 80CCD(2) of the Income Tax Act. Employees are allowed to have both,” said Deepashree Shetty, partner, Global Employer Services, Tax & Regulatory Services, BDO India.

Employee contribution to EPF or NPS does not get any tax deduction in the new tax regime.

EPF vs NPS: Who’s in control?

Transferring EPF can be difficult when switching jobs, as both your existing and new employer play a role in the process. In contrast, NPS offers flexibility and continuity. You don’t need employer approval to stop contributions or transfer your account.

If your new employer provides NPS benefits, you can continue contributing seamlessly. Even after leaving a job, your NPS account remains active. You can also convert your corporate NPS account to the all-citizen model—allowing self-contributions—by simply filling out the ISS form.

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Moreover, NPS returns are market-linked and compound at a higher rate than EPF. The EPFO sets EPF rates annually. It is 8.25% for FY25. EPFO invests your contribution as per EPF rules.

“In NPS, subscribers have the flexibility to choose how their money is invested across equity, corporate bonds, government securities, and alternate investment assets, within the limits set for each asset class. This allows employees to tailor their investments according to their risk preferences,” said Kurian Jose, CEO, Tata Pension Fund Management.

NPS subscribers in the private sector can adjust their asset allocation up to four times in a financial year, based on their understanding of the markets, changing financial situation, or evolving goals. These switches across asset class do not trigger any tax impact, thus providing an efficient way to actively manage their investments, he added.

Employees can easily open their NPS account digitally and simply share their PRAN (permanent retirement account number) with their employer. The payment into the NPS architecture is then routed through salary deduction as facilitated by the HR team, said Jose.

So far as withdrawals are concerned, 25% of your contributions can be withdrawn at any time, up to 3 times during your employment. Post retirement, 60% of the corpus can be withdrawn tax free and 40% goes to annuities to generate pension.

In EPF, partial withdrawal is possible while in the job. You can withdraw the full amount after leaving the job. Post-retirement, you can withdraw the full amount. Your withdrawal will be tax free only if you have completed five years of service.

Pension cap

On the pension front, NPS can help in generating higher pension depending on your corpus you use for annuities. However, with EPF, you can only get a maximum pension of ₹7,500 per month.

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“Pension is available under EPS (employee pension scheme). EPS contributions are made by employer at 8.33% of an employee’s basic salary if it is below ₹15,000. Employees get it after their retirement with a cap limit of ₹7,500 per month,” said Shetty.

EPS is a retirement benefit scheme under the EPF, where the employer contributes a portion of the employee’s salary to provide a monthly pension after retirement, subject to certain conditions.

If an employee who is not a member of EPF or EPS joins an employer on or after 1 September 2014, with a basic salary exceeding ₹15,000, their pension contribution is added to the employee’s EPF share instead of going into EPS.

For all other cases, pension contributions remain payable as per the standard EPF-EPS structure.