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Aadity Vikram Joshi (CA in practise)     28 September 2021


Dear all, 

We are trying to restructure the salary structure of a start up, for which PF is not yet mandatory. 

Can someone please give suggestions about NPS ? It has a long lock in period but the tax breaks are good. 

Are there any major reasons why NPS is NOT a good option? Thanks!

 6 Replies

Rama chary Rachakonda

Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294)     28 September 2021

Unlike mutual funds, NPS does not provide a lot of flexibility to investors in terms of investment and redemption. "With NPS, you are not allowed to redeem your entire investment before completing at least 10 years or reaching 60 years.

1 Like
Rama chary Rachakonda

Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294)     28 September 2021

When it comes to returns, NPS seems a better choice than PPF. In any retirement portfolio whether it is National Pension System and Public Provident Fund both have their own place and associated benefits. PPF is all about the safety cushion regarding your investments with solid returns.

1 Like

J S BHAVSAR (CONSULTING)     28 September 2021

The 40% corpus retained by NPS for providing annuity leads to various options of pension amount per month. There is no government guarantee on the annuity rates. Since the count of NPS pensioners would increase in large number from 2034 onwards, the cartel of handful of annuity providers (hardly 6 or 7) are most likely to unite themselves under IRDA and keep the annuity rate low. There is no union of pensioners or any leaders to fight for the NPS Pensioners, unlike in the EPFO where the private sector labour union body is involved to protect the 6 crore EPF subscribers to ensure fair amount of tax free interest rate is decided for each year.

If a workers contributes to NPS for 34 years, retires at age 60, withdraws the 60% corpus tax free and keeps 40% in the NPS annuity, and does not have a healthy life after 60 and passes away without dependents, then the NPS corpus is most likely forfeited by the annuity provider. NPS seems to be good if the worker and his dependents are healthy with no major ailments and are expected to live long life. There too, since the NPS annuity rate is not fixed and not guaranteed by government, the product is not attractive as compared to EPF.

1 Like
Aadity Vikram Joshi

Aadity Vikram Joshi (CA in practise)     28 September 2021

Thanks so much Ramchary Sir and Bhavsar Sir for taking the time to reply to this ! :) 

debora M

debora M (BUSINESS DEVELOPMENT MANAGER)     29 September 2021

Thus, while PF offers security and assured returns, NPS offers high risk and high returns. ... The choice between NPS and EPF depends on the knowledge of the taxpayer, risk appetite of the employee, options exercised by the employee, the returns, security, lock-in, liquidity, maturity etc.

 You can opt for both NPS and PF from your employer. Also, you can continue self-contribution to NPS, even as your employer contributes. Your tax benefits are as follows: Your PF contribution is allowed as a deduction under Section 80C, wherein the maximum deduction amount is Rs 1.5 lakh


J S BHAVSAR (CONSULTING)     29 September 2021

NPS should NOT be selected as a retirement option without considering below 3 points:

1) Employee knows he/she is healthy enough to live long life

2) Employee's dependents are healthy enough to live long life

3) Govt of India brings up a guaranteed annuity rate scheme for NPS pensions

Targeting to live retired life on a NPS pension will be like targeting something unknown.

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