Income Tax: EPF and NPS offer Section 80C tax benefits, but rules and exemptions differ; check out details

The government provides various schemes for salaried persons as well as people who want to save for retirement. National Pension Scheme (NPS) and Employee Provident Fund (EPF) are two such popular investment options. While, people investing in both options can enjoy the tax benefit of section 80C, exemptions and deduction rules differ for both. This article decodes those differences. 

National Pension Scheme (NPS)

Tax benefit under 80C: 

As per the NPS official website, any individual who is a subscriber of the scheme can claim tax benefits under Sec 80 CCD (1) with an overall ceiling of Rs 1.5 lakh under Sec 80 CCE.

Additionally, an additional deduction for investments up to Rs 50,000 in NPS (Tier I account) is available exclusively to NPS subscribers under subsection 80CCD (1B). This is over and above the deduction of Rs 1.5 lakh available under section 80C of the Income Tax Act.

As per ClearTax, the maximum deduction allowed under Sections 80C, 80CCC, and 80CCD put together is Rs 1,50,000. Over and above this limit, a further deduction of Rs 50,000 is available under section 80CCD(1B) for investments in NPS. Therefore, the total deduction available for contribution towards eligible investments under this section is allowed to be a maximum of Rs. 2,00,000. 

This deduction would be available only if the individual has opted for the old tax regime. 

Employee Provident Fund (EPF)

Tax benefit under 80C: 

As per ClearTax, employee contributions to EPF are eligible for a deduction under Section 80C, up to a maximum limit of Rs 1.5 lakh per financial year.

Also note, from FY 2020-21 onwards the interest on the employee’s EPF contributions above Rs 2.5 lakh is taxable for the FY 2023-24.

As per the income tax official website, the minimum tax limit for contributions is 2,50,000 for EPF members.

Key differences between EPF and NPS 80C tax rules

>> EPF enjoys a completely tax-free status on interest if held for five years, whereas NPS returns are tax-deferred until withdrawal.

>> NPS offers additional tax benefits under Section 80CCD(1B), which are only available for EPF for Tier I accounts.

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