EPF vs NPS: Which retirement plan suits you best

June 28, 2025 Finance Talk Valli Sarvani

As retirement planning becomes a financial priority for many Indians, two government-backed schemes, the Employees’ Provident Fund (EPF) and the National Pension System (NPS), are often compared.

Both aim to secure a stable income post-retirement, but they differ in terms of returns, tax benefits, structure, and withdrawal rules.

EPF: Safe, Fixed Returns

EPF is a mandatory savings scheme for salaried employees in the organised sector.
It offers guaranteed, fixed returns based on an interest rate declared annually by the government.
Contributions are deducted directly from the employee’s salary and matched by the employer.
The biggest advantage of EPF lies in its EEE (Exempt-Exempt-Exempt) tax status.
Contributions, interest earned, and the final withdrawal amount are all tax-free, provided certain conditions are met.
At retirement, the EPF corpus can be fully withdrawn as a lump sum, making it a highly liquid option for retirees.

NPS: Market-Linked Growth Potential

NPS, on the other hand, is open to all Indian citizens aged 18–70, including self-employed individuals.
Unlike EPF, NPS is market-linked and allows investors to choose their asset allocation between equity, corporate debt, and government securities.
Returns in NPS are not fixed but generally range between 8% and 12%, depending on the chosen asset mix and market performance.
This makes NPS potentially more rewarding in the long term, though it carries higher risk.
In terms of tax, NPS offers extra deductions: beyond the ₹1.5 lakh limit under Section 80C, investors can claim an additional ₹50,000 under Section 80CCD(1B).
However, only 60% of the corpus is tax-free at retirement, while 40% must be used to buy a taxable annuity.

EPF funds can be transferred to NPS (Tier I account), but the process must go through the employer.

The transfer is made via cheque or demand draft in the name of the NPS trust and the subscriber’s Permanent Retirement Account Number (PRAN).

Choosing between EPF and NPS depends on your risk appetite, job type, and financial goals.

EPF is ideal for those who want stability and guaranteed returns.

NPS suits those comfortable with market exposure and aiming for higher long-term growth.

In fact, many investors opt to invest in both. Combining the safety of EPF with the growth potential of NPS can offer a balanced retirement portfolio.

Image by Mohamed Hassan from Pxhere (Free for commercial use / CC0 Public Domain)

Image Published on August 05, 2018