Salaried professionals earning up to ₹14.65 lakh annually can legally pay zero income tax under the new regime—while building a retirement corpus worth over ₹12 crore.
In a detailed LinkedIn post, Sujit Bangar, founder of TaxBuddy.com, lays out how disciplined investing in EPF and NPS can not only eliminate taxes but also secure financial independence after 60.
Bangar outlines a dual strategy using two instruments—Employees’ Provident Fund (EPF) and National Pension System (NPS)—that combine guaranteed growth and market-linked flexibility. For someone earning ₹75,000 a month at age 30, he suggests contributing ₹12,500 each to EPF (including employer’s share) and NPS.
With an 8% annual salary increase and corresponding rise in contributions, by age 60 the EPF corpus would grow to ₹4.74 crore and the NPS to ₹7.42 crore, totalling ₹12.16 crore—largely tax-free.
EPF offers 8.25% interest, tax-free maturity after five years, and partial withdrawal options. Employees can also enhance returns by opting for Voluntary Provident Fund (VPF), allowing contributions up to 100% of basic salary. NPS, on the other hand, provides long-term flexibility, with historical returns of 9–11%. Investors can choose an asset mix under the ‘Active’ option or let it auto-adjust with age under the ‘Auto’ option. Upon retirement, 60% of the NPS corpus can be withdrawn tax-free, while 40% is mandatorily converted into an annuity.
The tax angle is key: Under the new tax regime, employer contributions up to 12% of basic salary in EPF and up to 14% in NPS are exempt from tax calculations. This allows employees earning up to ₹14.65 lakh annually to potentially pay zero income tax—while their retirement pot keeps compounding.
Bangar recommends a structured approach. In early years, use VPF for fixed returns and go heavy on equity in NPS using the Active Choice. As retirement nears, gradually shift the NPS corpus to debt. After 60, consider a Systematic Lump-sum Withdrawal (SLW) from NPS to manage post-retirement taxation.
However, he warns of limitations: EPF has liquidity constraints, and NPS requires 40% annuity purchase—locking in that portion for life. Both are long-term tools and shouldn’t be mistaken for short-term savings or emergency funds.
“Use them as the backbone of your retirement,” Bangar advises, “but always consult a financial planner before locking in your strategy.”
