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transfe pf to nps This article talks about the National Pension System account and the steps individuals can take to transfer their sum invested in their provident fund account to the NPS account. It will cover the following points:

What is the NPS account
Tier 1 and Tier 2 NPS account
Transfer from EPF account to NPS account
Taxation of the sum invested in NPS
Maturity proceeds from NPS and early withdrawal of the NPS Account

Recently the market is filled with the most interesting news especially for the salaried class people which is regarding transfer of the Employee Provident Fund or Superannuation Fund to the National Pension Scheme Account. It is an initiative which has been taken up by the PFRDA (Pension Fund Regulatory and Development Authority of India) the regulatory body of National Pension Scheme which comes under the purview of Ministry of Finance of India.

Employees Provident Fund account is well known, as it is an retirement benefit scheme which is made mandatory for every organisation who is at any point of time have more than 20 employees working under it. Under this scheme, the employer as well as employee together contribute 12 % each of the monthly salary of the employee (which includes the Basic and Dearness Allowance), into the EPF account. All employees who are receiving salary exceeding Rs 15000 per month are eligible to become the member of EPF.

The contribution made by the employer is tax free whereas the contribution made by employee is eligible for the deduction under sec 80C of Income Tax Act 1961. Employee Provident fund Organisation has been vested with the power to regulate the EPF scheme under the leadership of Ministry of Labour of Government of India. Employee receives interest on the accumulated fund on 1^st April every year which is tax free.

National Pension Scheme is also a retirement benefit scheme but it has been introduced much later than EPF in the year 2004 on 1^st of January. During the initial year it has been open only for the central government employee but from the year 2009 it made available to the every citizen of India. From the year of its introduction it has gained an immense importance as it is controlled by the fund managers and the fund contributed gets invested into the market and hence earn a good return which develop a good retirement corpus for the individual.

Now to enjoy this benefit of transfer, an individual must have an NPS account. If you do not have one then you can open it and the procedure for opening a National Pension Scheme Account is very simple and is explained in detail in this article.

National Pension Scheme Account

As mentioned earlier this is a retirement benefit scheme which has been introduced by government of India which is mandatory for the central government employees except armed forces personnel and voluntary for other individuals. Any individual who is a citizen of India and who is between 18 to 60 years of age can open this account. This is a more organised and professionally managed scheme which gives attractive returns to the individuals and thus helps in generating a good retirement corpus.

Procedure for Opening the NPS Account:

Under NPS there are 2 types of accounts

Tier I account
Tier II account

Tier I account:

It is a mandatory account and serves as the basis for the tool for accumulating retirement corpus. The withdrawal from this account is restricted. An Individual can withdraw from this only after the attainment of 60 years.

Tier I account can be opened by simply filling up the form available from the POPs or Point of Presence which are listed on PFRDA web site. Now you can also open a Tier I account through online mode.

Once your form is filled you can submit your form along with the KYC document which can be any of the following:

A copy of your PAN Card
An Address Proof (Aadhar Card, Driving Licence, Passport, Voter ID Card etc.)
Passport Size Photograph

At the time of opening the account you have to pay Rs 500 as an account opening charges. The minimum contribution after opening of the account is Rs 1000 in a year. It should be noted that the contribution towards NPS (Tier I as well as Tier II account) can be made only for once in a year.

Once all this formality is done your NPS Tier I account will be processed in a few days approximately in a week. After the opening of Tier I account you will be allotted with the Permanent Retirement Account Number which is a form of member ID. Only one account can be opened foe an individual.

Tier II Account:

Tier II account can be opened only when you have Tier I account. As it is mentioned earlier that Tier I account is mandatory and Tier II is voluntary.

If an individual wants to open a Tier II account then he/she should have a Tier I account and the Permanent Retirement Account Number copy should be submitted at the POP. Earlier the minimum contribution charges for opening of Tier II account was Rs 250 but now it has been reduced to nil i.e. no minimum contribution is required at the opening of account.

An individual can contribute once in a year and the minimum contribution in a year after opening is Rs 1000.

Under Tier II account there is no restriction on withdrawal from the account as in the case with Tier I account and only one account can be opened.

Choice of Asset Class

Now once your account has been opened you can choose the asset class in which you want your funds to be invested. This is the main reason of NPS account popularity as you can earn market equivalent return on your investment. Under this different asset classes are available for the individual to choose and they are as under:

“E” Asset Class – Under this your fund will be invested in the equity market and it carries a higher risk as well as higher returns. It is mainly suitable for the individuals who are below 40 years of age and have a good risk appetite.

“C” Asset Class – This is a moderate investment class where the investment will be mainly done in fixed income instruments other than government securities, for example, Corporate Bonds. It is suitable for the individuals who are above 40 years of age and below 50 years. It give moderate returns as compared to E asset Class.

“G” Asset Class – This class is meant for the investor who have a low risk appetite and want an fixed return. This class will invest your money in the government securities, thus carries lower risk and thus lower returns.

Choice of an Asset Allocation and Investment Strategy

You can easily choose your investment strategy or asset allocation form the following choices available to you that is:

Active Choice – Under this you can choose your investment allocation among the different asset classes E, C and G.

Auto Choice – This is for the individuals who do not have much exposure to the market technicalities and thus Fund Managers will do the allocation for you as per you age which is pre-defined.

Fund Managers

PFRDA is responsible in managing your funds and it is professionally managed by its 6 fund managers. The list of fund managers authorised under PFRDA are

ICICI Pension Fund Management Company Ltd.
Kotak Mahindra Pension Fund Ltd.
Reliance Capital Pension Fund Limited
SBI Pension Fund Limited
UTI Retirement solutions Limited
Annuity Service Provider

So, from the above fund managers you can choose your fund managers and the charges will be applicable as per your choice. The overall charges of fund management, annual maintenance as well as investment style is same for both types of account i.e. Tier I and Tier II account. You can change your fund manager if you want, but only once in a year.

Procedure for transfer from EPF to NPS

So this is the process and benefits of opening an NPS account. Now once you have opened an NPS account then, you can easily transfer your fund from EPF to NPS by following these other procedure which are as follows:

After opening of an NPS Account, you must submit a request letter through your employer to switch your funds into NPS account. You should provide your Permanent Retirement Account Number and EPF account details along with the request letter.

The recognized Provident Fund/Superannuation Fund Trust may issue the cheque/draft in the name of:

In case of Govt. Employee:

Nodal Office Name (PAO or CDDO Name)<>Employee Name <> PRAN (12 digit Number)

In Case of Employee under the Pvt Sector including All citizen model:

POP (Name of POP) Collection Account-NPS Trust<> Subscriber Name<>PRAN (12 Digit Number)

Once the letter is being acknowledged, the EPFO (Employees Provident Fund Organisation) will initiate the fund transfer process which is mainly done by issuing cheque or DD of that amount.
As an employee, you can request EPFO to issue the letter to your present employer mentioning the amount of fund being transferred to the NPS account.

Once, the letter is being issued and after the acknowledgement of an employer, the fund will be collected by the NPS POPs and the same will be credited in the account of an NPS Account holder.

It has been declared by the government that the amount which has been transferred in the NPS account from EPF account will not be taxable in the year in which it is transferred.

So after going through all the procedure of opening the NPS account as well as transferring your fund from EPF to NPS account, you can now easily avail this ongoing opportunity. NPS is a better option than EPF as it provides a better return on the investment as compared to EPF. It has been seen that NPS has given a return approximately between 10-14% whereas the EPF gives return which varies from 8.50% to 8.65% approximately for the year 2016-17. NPS has an option to choose the desired asset class and provide flexibility to the investor to analyze and choose the fund managers who can manage their funds.

Liquidity is a concern in NPS but as the funds are for retirement purpose and to lead a financially independent life after retirement, then it does not remains a concern for long. Therefore, an option to switch your funds into NPS is a very good initiative which has been taken up by the Ministry of Finance, as it will provide a better social security in later age and efficient corpus to an individual for his/her retired life.

Tax Benefit

NPS is an EET scheme which means that maturity proceeds are taxable. The contribution made under this scheme are eligible for tax deduction which is as follows:

Contribution under section 80 CCD(1)

Up to 10 % of the basic and DA contribution by the employees are eligible for the deduction including the limit of sec 80 C i.e. Rs 150000.

Up to 10% of the gross income of a self-employed individual including Rs 150000 of Sec 80 C

Contribution under sec 80 CCD(1)(b)

Employer’s contribution will be available to employees up to 10% of Basic and DA including Sec 80 C limit i.e. Rs 150000

Under Sec 80 CCD(2)

Additional Rs 50000 can be claimed as deduction apart from the limit of section 80 C i.e. Rs 150000.

Maturity Proceeds and early withdrawal from NPS

Withdrawal form the NPS Account

Once an individual attains 60 years of age then, he/she must have to purchase an annuity of at least 40 % of the accumulated amount and the rest 60 % will be available to them in lump sum.

For example, if Mr A has at the age of 60 years Rs 60 Lakhs in his NPS account. Then he must buy an annuity of Rs 24 lakhs which is 40% of 60 Lakhs and the rest 36 lakhs will be available to him in lump sum.

This is made mandatory to ensure a fixed source of income to the individual in his/ her retirement age and to make sure that corpus should be available to him till his expected life.

However if an individual wants he can defer the purchase of annuity by 3 years and which should be informed to the National Pension System Authority 15 days prior from attainment of retirement age. If a person dies in this period then, the nominee will get the accumulated amount and has to purchase the annuity.

The lump sum payment can also be deferred and once it is done you can only withdraw it after attainment of 70 years of age. If an individual dies during this period then, the amount will be received by the nominee.

Condition for exemption from Purchasing Annuity for Government Employee and Non- Government Employee

If at the time of retirement, in case of a government employee the accumulated fund is 2 Lac or less than 2 lac, then the person can withdraw the whole amount form the account. Whereas in the case of non-government employee if the accumulated fund is less than Rs 100000 then, he/she is eligible to withdraw the whole money from the account.

The maturity proceeds of NPS is taxable. It is understood by now that out of the total accumulated amount of NPS account 40% of such fund should be utilized to buy an annuity and rest 60 % will be receivable in lump sum. Therefore, the annuity amount will be taxed as per the slab rate of an individual and the lump sum will be taxable in the year in which it is being received.

Early Withdrawal from NPS

If a person wants to withdraw the amount before attaining the retirement age then, he/she can withdraw by purchasing annuity of 80% of the accumulated fund in the account and the rest 20% will be available to him/her in lump sum.

If the person dies before attaining the age of retirement, then, the 100% amount can be withdrawn by nominee.