EPF vs NPS at a glance
| EPF | NPS (Tier I) | |
|---|---|---|
| Return | Fixed, declared yearly (8.25%) | Market-linked (equity + debt) |
| Employee contribution | 12% of Basic+DA | You choose (often 10%) |
| Withdrawal at 60 | 100% | Up to 60% lump sum |
| Mandatory annuity | None | 40% of corpus |
| Maturity tax | Fully exempt (EEE) | 60% exempt; annuity income taxed at slab |
| Extra deduction | Within 80C ₹1.5 L | + ₹50,000 under 80CCD(1B); 80CCD(2) in new regime |
| Liquidity before 60 | Partial withdrawal allowed for defined needs | Very limited (25% of own contribution, 3 times) |
| Equity exposure | ~10–15% (via EPFO ETF) | Up to 75% (your choice) |
How the EPF corpus grows
12% of Basic+DA from you plus the employer's share into EPF (after 8.33% of the employer side, capped at a ₹15,000 wage, is diverted to EPS) earns the declared rate, compounded annually. Your contribution rises each year with salary growth. The whole balance is tax-free on withdrawal after 5 years of continuous service.
How NPS pays out
At 60, up to 60% of the corpus is a tax-free lump sum. The other 40% buys an annuity; at a 6.5% annuity rate a ₹40 lakh annuity portion pays about ₹21,600 a month, taxed at your slab. You can defer withdrawal to 75 or keep contributing. If the total corpus is ≤ ₹5 lakh, you can take all of it.
Which to pick
They are not mutually exclusive and most salaried people have EPF by default. Use EPF as the capital-protected core. Add NPS if you want higher expected returns from equity, value the extra ₹50,000 deduction, or your employer offers an 80CCD(2) match. If you dislike the forced annuity and its taxable income, weight more toward EPF plus your own equity mutual funds.
Questions
EPF or NPS?
EPF for a safe tax-free base; NPS for market-linked growth and the extra ₹50k deduction. Many use both.
How does EPF grow?
12% + employer share earns the yearly declared rate (8.25%), compounded annually, rising with your salary.
60/40 rule?
At 60, up to 60% is a tax-free lump sum; 40% must buy an annuity taxed at slab rate.
Bigger deduction?
NPS — 80C plus an exclusive ₹50,000 under 80CCD(1B), plus 80CCD(2) employer match even in the new regime.