The Employee Provident Fund (EPF) and Employee Pension Scheme (EPS) are two most popular retirement schemes in India. While both EPF and EPS aims at securing the future of employees, there are several differences between the two that every employee should know. Read below to know more about the differences between EPF and EPS.
Employees’ Provident Fund: What is the EPF Scheme?
The Employees’ Provident Fund (EPF) is a social security initiative designed to provide financial stability to employees during their retirement. It is a savings scheme where both employees and employers make monthly contributions, creating a substantial corpus over the course of an individual’s working years.
Read More: Taking a personal loan for your wedding? Here are the essential things you must keep in mind
Employee Pension Scheme: What is the EPS?
On the other hand, the Employee Pension Scheme (EPS) is an additional component of the EPF, focusing specifically on pension benefits. While the EPF guarantees a lump sum amount upon retirement, the EPS ensures a regular pension to employees who qualify.
What’s The Difference Between EPF and EPS?
EPF and EPS schemes differ significantly when it comes to contribution limits, eligibility criteria, withdrawal regulations, and tax advantages. Here’s a quick comparison between EPF and EPS:
Contribution to the Scheme: In the Employees’ Provident Fund (EPF) scheme, an employee contributes 12% of their salary along with dearness allowance, while the employer contributes 3.67% of the salary plus dearness allowance. For the Employee Pension Scheme (EPS), the employee does not contribute, and the employer’s contribution to EPF is 8.33% of the salary plus dearness allowance.
Read More: PPF, NPS and SSY accountholders: Do this before March 31 to avoid penalty
Contribution Limit: EPF does not have a fixed ceiling; instead, the limit is denoted as a percentage of the salary plus dearness allowance. On the other hand, the monthly contribution to EPS is capped at Rs. 1250.
Applicability: EPF is accessible to all employees, whereas EPS is exclusively available to employees whose salary plus dearness allowance falls below Rs. 15,000.
Withdrawal from the Account: Employees have the flexibility to withdraw from the EPF scheme at any time. If the withdrawal occurs before completing 5 years of service, the withdrawn amount is subject to taxation. However, if an employee remains unemployed for an uninterrupted period of 60 days, the entire EPF balance can be withdrawn. For EPS, early lump sum withdrawal is permissible if the member has completed less than 10 years of service or has reached 58 years of age, whichever occurs earlier.
The Benefit Payable: In EPF, the lump-sum benefit becomes payable after retirement upon reaching the age of 58 or if the employee remains jobless for an uninterrupted period of 60 days. For EPS, a regular pension becomes payable when the employee attains the age of 58. In the unfortunate event of the employee’s demise, the pension continues to be disbursed to the nominee.
Interest: The balance in the EPF account earns interest at a fixed rate, reviewed and determined by the Government every quarter, with the current annual interest rate standing at 8.15%. Conversely, the EPS account does not accrue any interest.
Tax Benefit: In EPF, the investment amount, returns, and redeemed amount are fully exempt from taxes. However, employees do not make contributions to EPS and are not eligible for tax benefits on their investments. Lump-sum withdrawals from the EPS scheme are taxable, and the pension received under the scheme is also subject to taxation.
The Bottom Line
The EPF and EPS work in tandem to secure an employee’s financial future. The EPF ensures a lump sum amount, while the EPS focuses on providing a regular pension. The combination of both schemes offers a comprehensive approach towards building a robust financial safety net for the workforce.
