EPF+NPS Retirement Corpus: Having a comfortable retirement life is a dream for many private sector employees. However, it depends upon how they plan their retirement during active service years. National Pension System (NPS) and Employees’ Provident Fund (EPF) are retirement schemes where they can contribute to create a sizeable retirement corpus.

In this write-up, know how it may be possible to create an over Rs 9 crore combined retirement corpus if they and their employer contribute to EPF and NPS. 

EPF contribution  

Employees’ Provident Fund (EPF) is a retirement scheme for private sector employees where they can contribute a minimum of Rs 1,800 to their EPF account and a maximum of 12 per cent of their basic pay and DA.

The employer also matches the amount to contribute to the employee’s EPF account.

However, only 3.67 per cent of their contribution goes to EPF.

The remaining 8.33 per cent goes to the employee’s Employees’ Pension Scheme (EPF), a maximum of Rs 1,200 a month.

The EPF subscriber gets an 8.25 per cent interest on the amount compounded yearly.

The employee can contribute till 60 years of age.

However, the retirement age is 58 years, at which point an EPF subscriber can withdraw 100 per cent of their corpus.

EPF tax benefit

The amount invested up to Rs 1.50 lakh in a financial year provides tax benefits to individuals in the old tax regime. The interest earned and the EPF maturity amount are tax-free in either of the tax regimes. 
In the new tax regime, tax benefits are available up to 12 per cent of the employer contribution. There is no tax benefit available on the employee contribution. 

National Pension System (NPS)

NPS is a market-linked retirement scheme where the retirement corpus depends on your contribution and returns from them.

A private sector employee can open a Tier I and Tier II NPS account.

A Tier I account can be opened with a minimum of Rs 1,000.

However, to continue an NPS account, the minimum contribution is Rs 6,000 a year with at least 1 deposit a year.

They can increase the contribution to any limit.

The employer also contributes to the employee’s NPS account to a maximum of 14 per cent of the employee’s basic pay and DA.

However, the employer contribution is voluntary.

The employee can pick the equity and fixed amount investment options for their NPS contribution through Active Choice.

They can withdraw up to a maximum of 60 per cent retirement corpus at 60 years of age.

From the remaining 40 per cent amount, they need to purchase an annuity plan to get a monthly option.

If they want, they can purchase the annuity plan from 100 per cent of their corpus. 

Tax benefits on NPS contribution 

Tax benefits to employees on self-contribution

For taxpayers following the old tax regime, a tax deduction up to 10 per cent of salary (basic pay+ DA) under Section 80 CCD(1) within the overall ceiling of Rs 1.50 lakh under Section 80 CCE.

In the same tax regime, a further tax deduction up to Rs 50,000 is available under Section 80 CCD(1B) over and above the overall ceiling of Rs 1.50 lakh under Section 80 CCE is also available.

NPS tax benefits in new tax regime 

The new tax regime provides tax benefits on the employer contribution to the employee’s NPS Tier I account. The maximum benefit available is 14 per cent of the employee’s basic pay and DA. 

Calculation conditions for story

We will calculate the total retirement corpus a 28-year-old employee with a Rs 40,000 basic pay and DA can create by contributing to their EPF and NPS accounts. Here are our investment conditions: 

Current age – 28

Retirement age – 60

Basic pay and DA – Rs 40,000

Employee EPF contribution – 12 per cent of basic pay and DA 

Employer EPF contribution – 3.67 per cent of basic pay and DA

Employee NPS contribution – 10 per cent of basic pay and DA 

Employer NPS contribution – 14 per cent of basic pay and DA

Annual raise in basic pay and DA – 5 per cent

EPF interest rate – 8.25 per cent

NPS return (estimated) – 12 per cent

Here are the results of the calculations: 

EPF retirement corpus

Employee contribution in 32 years – Rs 46,11,673.20

Employer contribution in 32 years – Rs 14,10,403.39

Combined contribution in 32 years – Rs 60,22,076.59

Total EPF corpus generated – Rs 2,17,40,511.30

NPS retirement corpus

Employee contribution in 32 years – Rs 38,43,061.00

Employer contribution in 32 years – Rs 53,80,285.40

Combined contribution in 32 years – Rs 92,23,346.40

Total NPS corpus generated – Rs 6,83,61,237.36

Combined NPS+EPF corpus in 32 years

Rs 2,17,40,511.30 (EPF)+ Rs 6,83,61,237.36 (NPS)= Rs 9,01,01,748.66

Maximum tax benefit in new tax regime

EPF employer contribution+NPS employer contribution=  Rs 46,11,673.20 (including EPS)+ Rs 53,80,285.40= Rs 99,91,958.6

Total benefits

(Combined EPF+NPS corpus)+ tax benefits = Rs 9,01,01,748.66+Rs 99,91,958.6= Rs 10,00,93,707.26

(Disclaimer: This is not investment advice. Do your own due diligence or consult an expert for financial planning.)