Over eight crore members of the Employees' Provident Fund can now transfer their retirement savings to the National Pension System which comes under the Pension Fund Regulatory and Development Authority (PFRDA).
The proposal came after the two years of Finance Minister Arun Jaitley's promise for such alternative in the Union Budget for 2015-16.
Jaitley assured to provide employees the option to exit from the EPF in order to opt for the NPS and had also stated that employees below a certain level of monthly income could decide if they wanted to stop their own contributions to the EPF or not.
According to the current rules, 24 per cent of an employee's salary is diverted to the EPF as a mandatory retirement saving scheme.
The Finance Ministry on Tuesday issued a circular, which said, "With the NPS gaining momentum vis-a-vis other retirement products and a number of queries being raised on the transfer of amounts from recognized Provident/Superannuation Funds to NPS, Pension Fund Regulatory and Development Authority (PFRDA) has clarified the process through a circular dated March 6, 2017".
Here is all you need to know about the new rules related to the stated matter:
- To transfer the retirement savings to the NPS, an active NPS Tier-I account is mandatory under the member's name. The account can be opened either through the employer where NPS is implemented or an individual can do it online through the NPS Trust website.
- The advantage of the same would be that the transfer income would not be taxable. As the amount transferred would not be treated as income of the current year.
- "Further, the transferred recognised Provident Fund/Superannuation Fund will not be treated as contribution of the current year by employee/employer and accordingly the subscriber would not make Income Tax claim of contribution for this transferred amount," the Finance Ministry's statement added.
- An individual, either a government or private sector employee must get in touch with his/her concerned PF office through the employer and should make a request to transfer their savings to an NPS account.
- "The recognized Provident Fund/Superannuation Fund Trust may initiate transfer of the Fund as per the provisions of the Trust Deed read with the provisions of the Income Tax Act, 1961," the PFRDA said.
- The latest move would be profitable for the members as the return on EPF savings this year is expected to be 8.65% but the NPS offers multiple asset allocation options and fund managers for its members to choose from, with varying rates of returns.