EPF vs VPF vs NPS: Where Should You Park Your Extra Retirement Money?
Indian employees have many popular retirement saving options available, including EPF, VPF and NPS. The EPF (Employees' Provident Fund) scheme is a government-backed retirement savings plan for salaried employees. VPF or Voluntary Provident Fund is an optional extension of EPF. On the other hand, NPS or the National Pension System, is a market-linked retirement plan open to all Indians.
Each of these schemes offers unique benefits and tax advantages. When deciding to choose the right scheme for your extra retirement money, one must assess factors like financial goals, risk appetite and investment duration.
This will help people to invest their extra money for a secure retirement.
Comparing Benefits Of EPF, VPF, NPS
EPF Benefits
EPF is one of the most popular schemes as it is mandatory for a large part of the formal Indian workforce. Employees earning up to Rs 15,000 basic salary and Dearness Allowance (DA), are mandatorily required to contribute to EPF. This government-backed savings scheme requires both an employee and their employer to contribute 12% of the employee's basic salary. These contributions earn interest over several years, currently being 8.25% per annum. The EPF scheme also allows partial withdrawal in cases of medical emergencies or events like weddings. Hence, this is a flexible savings option with assured returns.
The contributions made to an EPF account in a year are exempt from taxation under Section 80C. Employees should note that EPF withdrawals become tax-free only if the employee has contributed continuously to the EPF account for at least five consecutive years.
VPF Benefits
Salaried employees, who want to contribute more to the EPF savings apart from the mandated 12% of the basic salary and DA, can opt for VPF.
The scheme allows employees to contribute an additional amount towards their PF account up to 100% of the basic salary and DA. They will earn the same interest as provided for the EPF scheme. Since this is a voluntary plan, employers are not obliged to make contributions. Under the EPF scheme, the employers also contribute 12% of the basic salary and DA of the employee every month.
VPF contributions, interest and maturity proceeds are exempt from tax if the employee has completed at least five continuous years of service with contributions.
NPS Benefits
This market-linked retirement savings scheme is also voluntary in nature. The minimum required contribution in NPS is Rs 1,000 per financial year. Employees contributing to NPS get tax benefits on their contributions. They can claim a deduction up to 10% of salary (Basic + DA) under Section 80CCD(1) within the Rs 1.5 lakh limit of Section 80CCE. Additionally, they get an extra Rs 50,000 deduction under Section 80CCD(1B), beyond this limit.
Typically, this scheme delivers 8-10% returns annually. The NPS scheme allows withdrawal of 60% of the corpus fund as a lump sum on retirement at the age of 60 years. The remaining 40% can be converted into annuity payments or a pension.
All three schemes have been designed to provide financial security for retirement years. Selecting any of these schemes should depend on your financial conditions and investment goals.
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