India's pension regulator now allows members of the Employees' Provident Fund (EPF) to move their retirement savings to the National Pension System (NPS).
That’s not all, the amount transferred from recognised PF/ superannuation fund to NPS will not be treated as income of the current year and is hence not taxable.
“Further, the transfered PF/superannuation fund will not be treated as contribution of the current year by employee/employer and accordingly the subscriber would not make I-T claim for contribution for this transferred amount.” said the circulator on the PFRDA website. This will provide for exemption from taxation to a one time portability from recognised PF to NPS.
But a few conditions apply
If you are looking to transfer funds from EPF to NPS, you must have an active NPS Tier-I account. If you don’t have one, you can open such an account via your employer if they have implemented NPS or online through eNPS on the NPS Trust website.
How to transfer the funds
First, you have to approach the recognised PF/ Superannuation Trust Fund through your current employer and give a request for transfer of funds to NPS account.
The recognsied PF/Superannuation trust will have to initiate transfer of the fund as per provision of the trust deed and the provision of the Income Tax Act.
If you are a government employee, you should request the PF/ superannuation fund to issue a letter to your present employer mentioning that the amount is being transferred from the fund to be credited to your NPS Tier-1 account.
The present employer or point of presence (POP), i.e. the nodal office, while uploading the fund will mention on the transfer from PF/ superannuation fund in the remarks column while uploading. The upload has to be made as per request letter of the ex-employer.
In case of private sector employees, including subscribers covered under All Citizen’s Model NPS, the employees should request the recognised PF/ superannuation fund to issue a letter to the present employer/ PoP as the case may be, mentioning that amount is being transferred from the PF/ superannuation fund to be credited in the NPS account of the employee/ individual Tier-I account.
The POP will get the amount collected and the same has to be uploaded in the NPS account of the subscriber.
That’s the procedure, but there’s more to this story than just the announcement, and how to go about transferring the funds.
With NPS you cannot withdraw the entire corpus until you turn 60. However, as far as EPF is concerned, you can withdraw the entire corpus if you remain unemployed for two months or more. This may come in handy, in the present situation, where there is no job security and there is a lull in the job market.
Again, with NPS, after reaching 60 years of age, you are allowed to withdraw only 60 percent of the total corpus amount. And, 40 percent has to be used for purchase of annuity/ pension plan.
As of now, this annuity income or pension income is taxable because NPS falls under the EET (exempt, exempt, taxed) category of investments. Balwant Jain, Mumbai based Financial Expert says, "The returns on annuity have been very poor, around 6 percent."
As against this, the rate of return for EPF is usually fixed by the Central Board of Trustees every year. For 2016-17, the rate has been fixed at 8.65 percent.
When it comes to withdrawal from EPF, you can do so if you are unemployed for more than 2 months.
NPS returns are also dependent on asset allocation you have chosen, the efficiency of the fund manager and market conditions.
What should you do
Harsh Roongta, Mumbai-based Certified Financial Planner says, "As of now there is uncertainty around NPS design. Unless the authorities stop shoving down the annuity and make NPS an EEE product (exempt, exempt, exempt), there is no point in hurrying to switch from EPF to NPS."
Jain too agrees with the view. He says, "The authorities need to bring about parity in New Pension Scheme and other retirement schemes. As of now there's no need to switch from existing EPF to NPS,"
If it is mandatory for you to contribute to NPS then you do not have any choice but to contribute. But, as of now just follow the three golden words “hold your horses”.
Published Date: Mar 08, 2017 01:28 pm | Updated Date: Mar 08, 2017 03:59 pm