EPF vs NPS: Know Which Retirement Scheme Can Offer Better Tax Savings Based on Your Income Tax Regime

As the July 31, 2026 deadline for filing Income Tax Returns (ITR) approaches, many salaried individuals are reviewing their finances to identify legitimate ways to reduce tax liability while securing their retirement. Among the most widely used government-backed retirement savings options are the Employees' Provident Fund (EPF) and the National Pension System (NPS).

Both schemes are designed to help individuals build a retirement corpus, but their tax treatment differs depending on whether a taxpayer opts for the old tax regime or the new tax regime. Understanding these differences is essential before filing your return and planning future investments.

Understanding EPF and NPS

The Employees' Provident Fund is a mandatory retirement savings scheme for eligible salaried employees working in establishments covered under EPF regulations. Both the employee and employer contribute a fixed percentage of the employee's salary, helping create long-term retirement savings.

The National Pension System, on the other hand, is a voluntary retirement investment scheme regulated by the Pension Fund Regulatory and Development Authority (PFRDA). It allows subscribers to invest systematically in market-linked assets with the objective of generating retirement income.

While both schemes promote long-term financial security, their tax advantages vary significantly under different tax regimes.

Tax Benefits Under the Old Tax Regime

The old tax regime continues to be beneficial for taxpayers who actively invest in tax-saving instruments and claim eligible deductions.

EPF Contribution

Employee contributions to EPF qualify for tax deduction under Section 80C of the Income Tax Act.

• Maximum deduction available: ₹1.5 lakh per financial year

• The deduction forms part of the overall Section 80C limit.

Additional Benefit Through NPS

Individuals investing voluntarily in an NPS Tier I account can claim an extra deduction under Section 80CCD(1B).

• Additional deduction available: ₹50,000

• This benefit is over and above the ₹1.5 lakh limit available under Section 80C.

Maximum Combined Tax Deduction

Eligible taxpayers using both provisions can claim deductions of up to:

For taxpayers following the old tax regime, this combination can significantly reduce taxable income while simultaneously strengthening retirement savings.

What Changes Under the New Tax Regime?

The new tax regime offers comparatively lower income tax rates but limits access to most investment-based deductions.

If you choose the new regime:

• Deduction under Section 80C for employee EPF contributions is not available.

• Additional deduction under Section 80CCD(1B) for self-contributions to NPS cannot be claimed.

• Personal investments in EPF and NPS do not directly reduce taxable income.

As a result, individuals opting for the default tax regime generally receive lower tax benefits from voluntary retirement investments compared to the old regime.

Employer's NPS Contribution Still Remains Tax-Efficient

Despite the withdrawal of most deductions under the new regime, one significant tax advantage continues to remain available.

Employer contributions to an employee's NPS account qualify for tax benefits under Section 80CCD(2).

Under the current provisions:

• Employers can contribute up to 14% of Basic Salary plus Dearness Allowance (DA).

• The eligible employer contribution remains tax-exempt for the employee, subject to applicable limits prescribed under tax laws.

This provision makes employer-sponsored NPS contributions one of the few retirement-related tax benefits still available under the new tax regime.

Which Scheme Should Salaried Employees Choose?

The right choice depends largely on your overall tax planning strategy and retirement goals.

The old tax regime may be more suitable for taxpayers who regularly invest in tax-saving instruments and wish to maximise deductions through EPF, NPS, insurance premiums, home loan principal repayment, and other eligible investments.

The new tax regime may benefit individuals who prefer simplified taxation, lower tax rates, and do not claim substantial deductions.

Regardless of the tax regime selected, both EPF and NPS continue to serve as valuable long-term retirement planning tools. While tax savings are an important consideration, investors should also evaluate factors such as retirement objectives, investment horizon, risk tolerance, expected returns, and employer benefits before making a decision.

Final Takeaway

EPF and NPS remain two of India's most important retirement savings options. Under the old tax regime, combining EPF contributions with additional NPS investments can provide deductions of up to ₹2 lakh annually. In contrast, the new tax regime removes most personal investment deductions, although employer contributions to NPS continue to enjoy tax-efficient treatment.

Before filing your Income Tax Return, taxpayers should carefully compare both tax regimes and assess which option delivers greater overall financial benefit based on their income, eligible deductions, and long-term retirement planning.

Disclaimer: Tax provisions are subject to applicable laws and government notifications. Taxpayers should consult a qualified tax professional or financial advisor before making investment or tax-planning decisions.