A tax-free salary today and a Rs 12 crore retirement corpus tomorrow. That’s the financial outcome tax expert Sujit Bangar says is possible using just two tools: the Employees’ Provident Fund (EPF) and the National Pension System (NPS).
For salaried individuals earning up to Rs 14.65 lakh annually, Bangar believes this combination offers the best of both worlds: zero tax under the new regime and long-term wealth creation.
In a recent LinkedIn post, Bangar, who is the founder of TaxBuddy.com, shared a straightforward calculation.
Take a 30-year-old earning Rs 75,000 a month. If this person contributes Rs 12,500 each to EPF and NPS — a figure that includes both employee and employer shares — and increases both salary and investments by 8% every year, the results can be substantial. Over a 30-year period, the EPF contribution would grow into a corpus of Rs 4.74 crore, while the NPS investment would reach Rs 7.42 crore.
Combined, that’s a retirement fund of Rs 12.16 crore, most of it tax-free.
What makes this strategy more appealing, according to Bangar, is how it aligns with the tax rules under the new income tax regime.
Employer contributions of up to 12% of basic salary in EPF and up to 14% in NPS are tax-exempt. When structured correctly, these exemptions can effectively eliminate any tax liability for those with annual salaries up to Rs 14.65 lakh.
EPF, in Bangar’s view, offers stability and predictable growth. It earns 8.25% interest annually, and the maturity amount is tax-free after five years.
For those who want to increase their fixed-income exposure, additional contributions can be made through the Voluntary Provident Fund. NPS, meanwhile, brings flexibility and higher return potential. It allows investors to choose between an equity-heavy or age-based investment mix. Historically, NPS returns have ranged between 9 to 11%.
At the time of retirement, 60% of the corpus can be withdrawn without tax, while the remaining 40% is used to purchase an annuity that provides monthly income.
To maximise the benefits, Bangar suggests starting with a higher equity allocation in NPS during early working years and gradually shifting to debt as retirement approaches. He also recommends using the Systematic Lump Sum Withdrawal option post-retirement to avoid large tax hits.
However, he cautions that neither product is a one-size-fits-all solution. EPF has limited liquidity, which means it shouldn’t be relied on for short-term financial needs. NPS, by design, requires that 40% of the retirement corpus be locked into an annuity, which cannot be withdrawn during the retiree’s lifetime. These tools are best used as part of a long-term strategy, not for meeting every investment goal.
Still, for those focused on tax efficiency and retirement security, the case for EPF and NPS is strong.
(Disclaimer: This article is for general informational purposes only and does not constitute financial advice. Readers are encouraged to consult a certified financial advisor before making any investment or financial decisions. The views expressed are independent and do not reflect the official position of the India Today Group.)
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