Pension regulator issues circular, but you can’t shift from EPF to NPS just yet
Two years back, the government decided to make the pension sector more flexible by allowing individuals to choose between the employees provident fund (EPF) and the National Pension System (NPS). “The Finance Act, 2016 amended the Income Tax Act 1961 to allow tax free withdrawals from recognised provident funds (this includes the EPF) and superannuation funds for the purpose of transferring the money to the NPS,” said Sonu Iyer, tax partner and people advisory services leader, EY India.
On March 6, to facilitate the transfer, the Pension Fund Regulatory and Development Authority issued a circular laying out the procedure for individuals to transfer their money from their provident fund and superannuation fund to the NPS. The circular, however, doesn’t mention that you can’t transfer money from your EPF account to NPS just yet. Your EPF account is governed by the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 (EPF Act) and unless the Act is amended—deliberations are on— a transfer is not possible.
SHIFT FROM THE EPF
There are two types of recognised provident funds. “One is covered under the EPF Act and includes the exempt establishments that run their own PF trusts and are modelled after the EPF. The second is guided by the Income Tax Act, there are only a handful of these establishments like public sector banks and embassies,” said Amit Gopal senior vice-president, India Life Capital Pvt Ltd.
EPF is common for salaried individuals. It is optional for those who earn above ₹15,000 a month. However, it is not easy to opt out of EPF. That’s because once you have an EPF account, the EPF Act mandates you to transfer your EPF money as you move jobs.
According to the PFRDA official who didn’t want to be named, the circular lays down the process and will be applicable even to EPF subscribers or subscribers of other provident funds covered under the EPF Act that want to move to NPS. But according to Iyer the transfer may not be that simple given that for transfer of funds, changes will need to be made in the governing rules and trust deeds of superannuation funds, which in itself can be a long-drawn process.
PROCESS OF TRANSFER
You need to have an NPS account— either your individual account or the corporate NPS account. You then need to approach your current employer and request her to transfer your superannuation fund to the NPS —we are not talking about the transfer of your provident fund money as that is not possible at the moment, however the process remains the same. The employer will then approach the superannuation trust for withdrawal. The trust will then write a cheque in favour of the POP (point of presence such as banks are distributors for NPS) used by the employer. The POP will then upload the money in the subscriber’s account as arrears.
Remember even if you opened an NPS account online without a POP, for the purpose of transfer a POP is important.