What is EPF, VPF, and NPS?
These three are India's primary retirement savings vehicles, each with distinct characteristics. Understanding their differences helps you optimize your retirement corpus while maximizing tax benefits.
EPF (Employees' Provident Fund) is a mandatory retirement scheme where both employee and employer contribute 12% of basic salary. The EPFO manages funds and guarantees returns - currently 8.25% for FY 2025-26.
VPF (Voluntary Provident Fund) allows you to contribute beyond the mandatory 12% EPF. It earns the same 8.25% interest as EPF but gives you flexibility to boost retirement savings with guaranteed returns.
NPS (National Pension System) is a market-linked retirement scheme offering exposure to equity, corporate bonds, and government securities. Returns vary (historically 9-12%) based on fund selection and market performance.
Real Example: Priya (35 years old) earns ₹80,000 basic salary. Her EPF contribution is ₹9,600/month (12%). She adds 10% VPF (₹8,000) and ₹6,000 to NPS. In 25 years at retirement, her EPF+VPF corpus at 8.25% will be ~₹2.1 Cr, and NPS at 10% return will add another ~₹79 Lakhs. Combined: nearly ₹3 Crore!
How Does This Calculator Work?
The calculator computes retirement corpus using compound interest formulas specific to each instrument:
- EPF: Employee 12% + Employer 3.67% (8.33% goes to EPS capped at ₹1,250/month)
- VPF: Additional voluntary contribution at same EPF rate
- NPS: Your chosen monthly contribution at expected market return
The corpus is calculated using the future value of annuity formula, assuming monthly contributions and annual compounding.
Formulas Used
EPF/VPF Corpus = P × [((1 + r)^n - 1) / r] × (1 + r)
- P: Monthly contribution (Employee + Employer for EPF)
- r: Monthly interest rate (8.25% ÷ 12 = 0.6875%)
- n: Total months until retirement
NPS Corpus = Monthly SIP × [((1 + r)^n - 1) / r] × (1 + r)
NPS uses same formula but with market-linked expected return (typically 9-12% for equity-heavy allocation).
EPF vs VPF vs NPS: Key Differences
| Feature | EPF | VPF | NPS |
|---|---|---|---|
| Interest Rate (FY 25-26) | 8.25% | 8.25% | 9-12% (market) |
| Return Type | Guaranteed | Guaranteed | Market-linked |
| Tax Status | EEE* | EEE* | EET (60% tax-free) |
| 80C Deduction | Up to ₹1.5L | Up to ₹1.5L | Up to ₹1.5L |
| Additional 80CCD(1B) | No | No | ₹50,000 extra |
| Employer Contribution | 12% (3.67% to EPF) | No | Up to 14% (80CCD2) |
| Withdrawal at 60 | 100% tax-free | 100% tax-free | 60% lump sum + 40% annuity |
| Lock-in | Till retirement/job change | Same as EPF | Till age 60 (partial allowed) |
*EEE for EPF/VPF applies only if annual contribution is ≤₹2.5 Lakhs. Interest on excess is taxable.
Tax Benefits Comparison (FY 2025-26)
Under Old Tax Regime
- EPF/VPF: Deduction under 80C up to ₹1.5 Lakh (shared with other 80C investments)
- NPS: ₹1.5L under 80CCD(1) + Additional ₹50K under 80CCD(1B) = ₹2 Lakh total
- Employer NPS: Up to 14% of basic salary under 80CCD(2)
Under New Tax Regime
- EPF/VPF: No deduction available for employee contribution
- NPS 80CCD(1B): Not available
- Employer NPS 80CCD(2): Still available up to 14% of salary - only major deduction in new regime!
Strategy: If your employer offers NPS matching, maximize it! Under new regime, it's the only significant deduction available. Ask your employer to contribute to NPS instead of higher CTC components.
When to Choose Each Option
Choose VPF If:
- You want guaranteed, risk-free returns
- Your 80C limit isn't fully utilized
- You prefer complete liquidity at retirement (100% withdrawal)
- Annual contribution stays under ₹2.5 Lakh
Choose NPS If:
- You want higher growth potential (equity exposure)
- You've exhausted 80C and need additional ₹50K deduction
- Your employer offers NPS contribution (80CCD2 benefit)
- You're comfortable with market risk
- You're in new tax regime (employer NPS is only major deduction)
Optimal Strategy
Most financial advisors recommend a combination: Let mandatory EPF accumulate, add VPF if you want guaranteed growth, and invest in NPS for equity exposure plus extra tax benefits. This balances safety with growth.
Frequently Asked Questions (FAQs)
What is the EPF interest rate for FY 2025-26?
The EPFO has set the EPF interest rate at 8.25% for FY 2025-26, increased from 8.15% in the previous year. This rate applies to both EPF and VPF contributions. The interest is compounded annually and credited at year-end to your EPF account.
Is VPF better than NPS for retirement?
VPF offers guaranteed 8.25% returns with full tax exemption (EEE status), making it better for risk-averse investors. NPS offers potentially higher returns (10-14%) but is market-linked with risks. VPF is better for safety; NPS is better for growth potential and additional ₹50K tax deduction under 80CCD(1B) in old regime.
Can I contribute to both VPF and NPS simultaneously?
Yes, you can contribute to both VPF and NPS. VPF contributions fall under Section 80C (₹1.5L limit shared with other 80C investments). NPS offers an additional ₹50K deduction under 80CCD(1B) over and above the 80C limit, plus employer contribution deduction under 80CCD(2).
Is EPF interest taxable above ₹2.5 lakh contribution?
Yes, from FY 2021-22, interest earned on employee EPF/VPF contributions exceeding ₹2.5 lakh per year is taxable as "Income from Other Sources." For employees with no employer contribution to EPF, the limit is ₹5 lakh. Interest on employer's contribution is not affected by this rule.
What is the NPS withdrawal rule at retirement?
At age 60, you can withdraw 60% of NPS corpus as tax-free lump sum. The remaining 40% must be used to purchase an annuity (pension). From 2025, if corpus is ₹8 lakh or less, you can withdraw 100%. The lump sum limit has been increased to 80% with 20% mandatory annuity for higher corpus.