EPF vs NPS: Which Scheme Can Help You Save More Tax in 2026?
With the Income Tax Return (ITR) filing deadline of July 31, 2026, drawing closer, salaried taxpayers are looking for smart ways to reduce their tax burden while building long-term savings. Two of the most popular government-backed retirement schemes, Employees' Provident Fund (EPF) and National Pension System (NPS), continue to play a key role. However, the tax benefits you receive depend entirely on whether you choose the old or the new tax regime .
Old Tax Regime : Maximum Tax Savings
The old tax regime remains attractive for taxpayers who claim deductions through investments.
Employee contributions to EPF qualify for a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
In addition, voluntary investments in an NPS Tier I account are eligible for an extra deduction of Rs 50,000 under Section 80CCD(1B).
By using both benefits together, eligible taxpayers can reduce their taxable income by as much as Rs 2 lakh in a financial year.
New Tax Regime: Fewer Personal Deductions
The new tax regime, now the default option, offers lower tax rates but removes most investment-linked deductions.
This means taxpayers cannot claim deductions under Section 80C for EPF contributions or the additional Section 80CCD(1B) deduction for self-contributions to NPS. As a result, personal investments in these schemes no longer provide direct tax relief under the new regime.
Employer NPS Contribution Still Offers Tax Benefits
Although most deductions are unavailable in the new regime, one major tax advantage remains.
Under Section 80CCD(2), an employer's contribution to an employee's NPS account continues to be tax-efficient. Employers can contribute up to 14% of the employee's basic salary plus dearness allowance (DA), and this contribution remains tax-free in the hands of the employee.
This makes employer-sponsored NPS one of the few effective tax-saving opportunities available under the new tax regime.
Tax-Free Contribution Limits
To prevent excessive tax benefits, the government has capped the combined tax-free employer contribution to EPF, NPS and the superannuation fund at Rs 7.5 lakh per financial year.
If the total employer contribution exceeds this limit, the excess amount is treated as part of the employee's taxable salary.
Separately, interest earned on an employee's own EPF contributions above Rs 2.5 lakh in a financial year is also taxable.
Latest NPS Rule Changes
The National Pension System has recently introduced more flexibility for subscribers.
Retirees can now withdraw the 60% lump-sum retirement corpus in installments through the Systematic Lump Sum Withdrawal (SLW) option until the age of 85.
Another major change benefits subscribers with smaller retirement savings. The limit for withdrawing the entire NPS corpus without purchasing an annuity has been increased from Rs 5 lakh to Rs 8 lakh. Those with a corpus of Rs 8 lakh or less can now withdraw the full amount tax-free without buying a pension plan.
EPF and NPS continue to be valuable retirement savings tools, but their tax advantages differ sharply between the two tax regimes. The old regime rewards personal investments with higher deductions, while the new regime mainly offers tax benefits through employer contributions to NPS. Understanding these differences can help taxpayers choose the option that best suits their financial and tax-planning goals before filing their ITR.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a certified financial advisor before making any decisions. NewsPoint is not responsible for any gains or losses arising from this information.
Old Tax Regime : Maximum Tax Savings
The old tax regime remains attractive for taxpayers who claim deductions through investments. Employee contributions to EPF qualify for a deduction of up to Rs 1.5 lakh under Section 80C of the Income Tax Act.
In addition, voluntary investments in an NPS Tier I account are eligible for an extra deduction of Rs 50,000 under Section 80CCD(1B).
By using both benefits together, eligible taxpayers can reduce their taxable income by as much as Rs 2 lakh in a financial year.
New Tax Regime: Fewer Personal Deductions
The new tax regime, now the default option, offers lower tax rates but removes most investment-linked deductions. This means taxpayers cannot claim deductions under Section 80C for EPF contributions or the additional Section 80CCD(1B) deduction for self-contributions to NPS. As a result, personal investments in these schemes no longer provide direct tax relief under the new regime.
Employer NPS Contribution Still Offers Tax Benefits
Although most deductions are unavailable in the new regime, one major tax advantage remains.
Under Section 80CCD(2), an employer's contribution to an employee's NPS account continues to be tax-efficient. Employers can contribute up to 14% of the employee's basic salary plus dearness allowance (DA), and this contribution remains tax-free in the hands of the employee.
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This makes employer-sponsored NPS one of the few effective tax-saving opportunities available under the new tax regime.
Tax-Free Contribution Limits
To prevent excessive tax benefits, the government has capped the combined tax-free employer contribution to EPF, NPS and the superannuation fund at Rs 7.5 lakh per financial year. If the total employer contribution exceeds this limit, the excess amount is treated as part of the employee's taxable salary.
Separately, interest earned on an employee's own EPF contributions above Rs 2.5 lakh in a financial year is also taxable.
Latest NPS Rule Changes
The National Pension System has recently introduced more flexibility for subscribers.Retirees can now withdraw the 60% lump-sum retirement corpus in installments through the Systematic Lump Sum Withdrawal (SLW) option until the age of 85.
Another major change benefits subscribers with smaller retirement savings. The limit for withdrawing the entire NPS corpus without purchasing an annuity has been increased from Rs 5 lakh to Rs 8 lakh. Those with a corpus of Rs 8 lakh or less can now withdraw the full amount tax-free without buying a pension plan.
EPF and NPS continue to be valuable retirement savings tools, but their tax advantages differ sharply between the two tax regimes. The old regime rewards personal investments with higher deductions, while the new regime mainly offers tax benefits through employer contributions to NPS. Understanding these differences can help taxpayers choose the option that best suits their financial and tax-planning goals before filing their ITR.
Disclaimer: This article is for informational purposes only and does not constitute investment advice. Please consult a certified financial advisor before making any decisions. NewsPoint is not responsible for any gains or losses arising from this information.
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