EPF vs EPS: A Complete Guide to Benefits, Eligibility, and Withdrawals
When it comes to retirement savings in India, two prominent schemes stand out: the Employee Provident Fund (EPF) and the Employee Pension Scheme (EPS). Understanding the difference between EPF and EPS is crucial for employees looking to secure their financial future. This article aims to clarify what each scheme offers, how they function, the benefits associated with them, and EPF Vs EPS in detail.
What is EPF?
The EPF full form is Employee Provident Fund. It is a mandatory savings scheme designed for salaried employees in India. Under this scheme, both employees and employers contribute a percentage of the employee’s basic salary towards the EPF account. Specifically, 12% of the employee’s basic salary and dearness allowance (DA) is contributed to the EPF. This amount accumulates over time, earning interest, which helps build a substantial corpus for retirement.
Key Features of EPF
- Contributions
Both employees and employers contribute 12% of the employee’s basic salary and DA towards EPF. Out of the employer’s 12% contribution, 3.67% goes to the EPF, while 8.33% is allocated to EPS. - Interest Rates
The EPF account earns interest on the accumulated balance. The interest rate, set annually by the government, is 8.25% for FY 2023-2024. This ensures a steady and reliable return on your investment. - Withdrawal Options
Employees can withdraw their EPF savings upon retirement. Partial withdrawals are permitted under specific circumstances like medical emergencies, marriage, or higher education expenses. - Tax Benefits
Contributions to EPF are eligible for tax deductions under Section 80C of the Income Tax Act. Moreover, withdrawals after retirement are entirely tax-free if certain conditions are met. - Universal Account Number (UAN)
A UAN is assigned to each EPF account holder, allowing employees to manage their accounts online, check balances, and initiate fund transfers when switching jobs.
Benefits of EPF
- Lump-Sum Amount at Retirement
The EPF scheme helps you accumulate a significant retirement corpus that can be withdrawn as a lump sum when you retire. - Tax-Efficiency
Contributions made to EPF are eligible for deductions under Section 80C. Additionally, withdrawals are tax-free if specific conditions are met. - Emergency Withdrawals
You can withdraw from your EPF balance for urgent needs, such as medical expenses, home loans, or higher education. - Nominee Benefits
In case of an employee’s untimely death, the EPF balance is paid to the nominee or legal heir, ensuring financial support for the family.
Eligibility for EPF
- All organisations with more than 20 employees must enrol eligible employees in EPF.
- Employees earning up to ₹15,000 per month are mandatorily enrolled, which ensures contributions toward both EPF savings and the EPF pension component (EPS).
- Employees with salaries above ₹15,000 can voluntarily opt for EPF, which also includes contributions toward the EPF pension under the EPS framework.
Withdrawal from EPF
- Full withdrawal is allowed upon retirement or if unemployed for over 60 days. This includes the balance accumulated in the EPF account as well as any eligibility for EPF pension under EPS.
- Partial withdrawals are allowed for specific purposes, such as medical emergencies or education expenses, but do not impact the EPF pension contributions.
- Withdrawals before completing 5 years of service may attract TDS at 10%, and the EPF pension portion under EPS may only be accessed as per specific withdrawal rules.
What is EPS?
The EPS full form is Employee Pension Scheme. This scheme was introduced to provide a pension to employees post-retirement. Unlike EPF, only the employer contributes to this scheme, specifically 8.33% of the employee’s basic salary and DA goes towards EPS. The EPS aims to provide financial security to employees after they retire, ensuring a steady income stream during their retirement years.
Key Features of EPS
- Employer Contribution
The employer contributes 8.33% of the employee’s basic salary and DA to EPS, but this contribution is capped at a maximum salary of ₹15,000 per month. - Pension Benefits
EPS provides a monthly pension after retirement. To be eligible, employees must complete at least 10 years of service. The pension amount is based on a predefined formula that factors in the average salary and years of service. - Calculation of Pension
The pension is calculated using the formula:
(Average Salary for the Last 5 Years × Years of Service) ÷ 70. - Survivor Benefits
EPS ensures financial security for the employee’s family by providing pension benefits to dependents in case of the employee’s demise. - No Employee Contribution
Employees do not contribute directly to EPS, which is why no tax benefits are available on contributions. However, the pension income received post-retirement is taxable as per applicable income tax slabs.
Benefits of EPS
- Regular Income Post-Retirement
EPS offers a monthly pension that provides financial stability during retirement years. - Survivor Pension for Dependents
If an employee passes away before retirement, family members are eligible to receive monthly pension benefits under EPS. - Financial Security for Life
The scheme ensures a steady income stream during retirement, offering long-term financial stability.
Eligibility for EPS
- Employees with a monthly salary plus DA not exceeding ₹15,000 are eligible.
- A minimum of 10 years of service is required for pension benefits.
- Employees with less than 10 years of service can apply for a scheme certificate when leaving employment.
Withdrawal from EPS
- Employees can withdraw their EPS balance if they have less than 10 years of service.
- Employees with more than 10 years of service must wait until age 58 to begin receiving a pension.
EPF Vs EPS: Differences Between EPF and EPS
Here’s a detailed comparison of EPF and EPS, including contributors, purpose, tax implications, withdrawal rules, and more. Understanding the difference between EPF and EPS is essential for making informed decisions about retirement planning.
| Feature | Employee Provident Fund (EPF) | Employee Pension Scheme (EPS) |
| Full Form | Employee Provident Fund | Employee Pension Scheme |
| Purpose | To help employees accumulate a lump sum retirement corpus | To provide a regular monthly pension after retirement |
| Contributors | Both employee and employer contribute 12% of basic salary and DA. Out of the employer’s contribution, 3.67% goes to EPF. | Only the employer contributes 8.33% of the employee’s basic salary and DA. |
| Contribution Limit | No specific cap; contributions are based on the employee’s basic salary and DA. | Contributions are capped at a maximum salary limit of ₹15,000 per month. |
| Interest Earned | Yes, the EPF account earns annual interest set by the government. For FY 2023-24, it is 8.25%. | No interest is earned on EPS contributions. |
| Withdrawal Rules | Entire EPF balance can be withdrawn upon retirement or unemployment for over 60 days. Partial withdrawals are also allowed. | Withdrawal is only allowed if service duration is less than 10 years. After 10 years, pension starts after age 58. |
| Eligibility for Withdrawal | Employees must have retired, resigned, or been unemployed for more than 60 days for full withdrawal. | Employees must either leave employment with less than 10 years of service or wait until retirement age for pension. |
| Minimum Service Requirement | No minimum service requirement to withdraw the EPF balance. | A minimum of 10 years of service is required to qualify for pension benefits. |
| Tax Implications | Contributions qualify for tax deductions under Section 80C, and withdrawals after retirement are tax-free if certain conditions are met. | Pension received from EPS is taxable as per the employee’s income tax slab. |
| Universal Account Number (UAN) | A UAN is assigned, which allows employees to manage EPF accounts online, check balances, and transfer funds when changing jobs. | EPS contributions are linked to the same UAN but cannot be directly managed by employees like EPF. |
| Nominee Benefits | Nominees or legal heirs receive the full EPF corpus in case of the employee’s demise. | Nominees receive survivor pension benefits in case of the employee’s demise. |
| Focus Area | Lump sum savings for retirement | Monthly pension for post-retirement financial stability |
| Mandatory Contribution | Mandatory for both employee and employer for organisations with 20+ employees. | Mandatory employer contribution for organisations with 20+ employees. |
| Transfer on Job Change | EPF balance can be transferred to a new employer’s account using the UAN. | Pension rights are retained and carried forward to the next employer’s EPS account. |
| Additional Benefits | Emergency partial withdrawals are allowed for medical needs, education, housing, or marriage. | Provides survivor benefits for family members, ensuring financial security for dependents. |
| Pension Calculation Formula | Not applicable; EPF provides a lump sum amount. | (Average salary of last 5 years × Years of Service) ÷ 70 |
To Wrap Up…
In summary, both EPF and EPS play vital roles in India’s social security framework. While EPF focuses on building savings for retirement, EPS provides ongoing financial support through pensions. Understanding these differences will help individuals make informed decisions about their retirement planning and ensure they choose the right scheme based on their financial goals and needs. By knowing what is EPF and what is EPS, employees can better prepare for a secure financial future post-retirement.
FAQs About EPF vs EPS
If you change jobs, your EPF balance can be transferred to your new employer’s account using your UAN. EPS contributions remain with the previous employer’s account but can be consolidated upon retirement.
Yes, full EPF withdrawals are allowed upon retirement or after 60 days of unemployment. Partial withdrawals are also permitted for specific purposes.
Your monthly pension is calculated based on the formula:
(Average Salary for Last 5 Years × Years of Service) ÷ 70.
Contributions to EPF are tax-deductible under Section 80C, and withdrawals after retirement are tax-free. Pension income under EPS is taxable as per your income tax slab.
Yes, organisations with more than 20 employees are legally required to enrol their employees in EPF and EPS.
The main purpose of EPF is to provide employees with a lump-sum amount upon retirement, while EPS aims to provide a regular pension income after retirement.
In EPF, both the employee and employer contribute (12% each), whereas in EPS, only the employer contributes (8.33% of the employee’s salary).
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