When we subscribe to National Pension Scheme (NPS), what happens to our previous contribution in Employees Provident Fund (EPF)? Does the money in it gets transferred to NPS? Or do we have to withdraw our funds or continue a dormant account till retirement? There is a minimum contribution of ₹.6,000 in tier 1 account - should that be contributed by by the employee or only employer contribution will also do? Do we get to select the percentage allocation or would the employer decide that? Also, if I understand it correctly, the entire amount (contribution from the employer) becomes tax free for the employee Do I have to match my employer's contribution or can I keep it at zero? If I contribute, does my contribution count as part of limit of ₹.1.5 lakh under section 80CCE or can I count it as part of deduction under section 80CCD(1B)? Assuming I contribute ₹50,000, can I count it under section 80CCD(1B) and use my limit of ₹1.5 lakh for other investments (mutual funds, PPF, etc)? Or do I need to first exhaust my limit of ₹1.5 lakh and then get the extra benefit of ₹50,000?
To begin with, find out from your company whether it is offering National Pension Scheme (NPS) to its employees. If yes, you can consider joining the scheme. If you stop contributing to Employees Provident Fund for 36 months, it will become inoperative and it won't earn any interest. So, it is better to withdraw the money and invest it in NPS or any other avenues.
Your NPS account works like your EPF account. You make a contribution and your employer would also offer a matching contribution. You can claim a tax deduction on your contributions under Section 80CCD(1) and your employer's contributions qualify for a tax deduction under Section 80CCD(2). You can also make an individual contribution and claim extra deduction of up to ₹50,000 under Section 80CCD(1B).
You can claim a total tax deduction of up to ₹2 lakh under Section 80C and Section 80CCD of the Income Tax Act. You can claim a tax deduction on your contribution to NPS under Section 80CCD(1B) and invest in tax planning mutual funds, Public Provident Fund, etc to claim a tax deduction of up to ₹1.5 lakh under Section 80C.
For more information, read: NPS FAQs.