Can I Invest In Provident Fund (PF) and NPS?

Can I Invest In Provident Fund (PF) and NPS?
Personal Finance Queries For The Day (15-01-2021)
Uma S Chander - 22 March 2021

Mudra Kapoor, Mumbai

I have joined a new organisation, where I am getting Employees’ Provident Fund (EPF). They have also given me the option of the National Pension Scheme (NPS). Could I get both Provident Fund (PF) and NPS from my new employer? Also, could I continue contributing to my NPS even if I opt for my employer to contribute to my NPS? Which would be a better option for me?

Yes, You can opt for both NPS and PF from your employer. Also, you can continue self-contribution to NPS, even as your employer contributes.

Your tax benefits are as follows:

  • Your PF contribution is allowed as a deduction under Section 80C, wherein the maximum deduction amount is Rs 1.5 lakh.
  • Your self-contribution to NPS is also eligible for a deduction under Section 80C. However, most of us exhaust this limit easily through other investment options like life insurance premiums, equity-linked saving schemes, or PF. In that case, you can claim deduction under Section 80CCD (1B) for up to Rs 50,000 for self-contribution to NPS.
  • The contribution made by the employer to NPS is further allowed as a deduction under a separate Section - Section 80CCD(2), subject to a maximum of 10 per cent of your basic salary and dearness allowance.
  • Hence, you can claim tax benefits under three different sections, and take it to over Rs 2 lakh.

It is good to opt for the company contribution to NPS in case you are falling in the 30 per cent tax bracket. In case you are in the 20 per cent tax bracket or below, you can choose employer contribution to NPS if it fits your requirements, as your in-hand salary will reduce to that extent.

NPS is meant for those who are exploring means to save for their retirement years.

Swapna More, Thane

I have left an organisation, where I worked for the last 12 years to start on my own. Now I am self-employed. I want to withdraw the entire Employee Provident Fund (EPF) from that organisation. Will it be taxable? Also, will I get any interest in this PF?

Dear Swapna, since you were in service for more than 5 years, your EPF withdrawal is exempt from any kind of tax. As for interest after leaving your job is concerned, there is an accrual on the balance in the PF account. However, the interest that you earn on your PF after leaving your job is taxable. Your PF account will become inoperative if you do not apply for withdrawal (full or partial) within 36 months from the date you became eligible to make the withdrawal application. After the account gets inoperative, it does not earn further interest.

Uma S Chander, Certified Financial Planner, Handholding Financials


Latest Issue

Outlook Money
May 2024