Employee Provident Fund (EPF) and Employee Pension Scheme (EPS) are two of the most important retirement schemes in India. As an employee, it is important to understand the difference between EPF and EPS, as they both offer different benefits.
This article will provide an overview of the schemes to give a comprehensive understanding of their individual merits.
What is EPF Scheme?
The Employees’ Provident Fund (EPF) is a savings scheme introduced by the Indian Government. This scheme aims to provide financial security and stability to employees after they retire or leave their jobs. Under this scheme, employers and employees contribute a certain percentage of their salary towards the fund every month. The EPF is calculated as 12% of the employee’s basic salary plus dearness allowance.
The contributions made by both employer and employee are accumulated over time with interest, providing a stable retirement fund for the employee. The interest rate on EPF varies from year to year, and you can earn a regular and fixed rate of interest that is determined by the Indian Government.
What is EPS Scheme?
Employee Pension Scheme (EPS) is a retirement savings plan that helps pay pensions to employees who are a part of the EPFO (Employees’ Provident Fund Organisation). The scheme benefits employees when they retire, become disabled, or die while still employed.
It is designed to ensure that employees have a source of income after retirement to sustain their livelihoods. The scheme also helps employers attract and retain good employees by providing additional benefits beyond their regular salary. Employers usually administer pension schemes through trust funds managed by professional investment managers who invest the funds on behalf of members.
How to calculate EPS?
The Employees’ Pension Scheme (EPS) is a part of the overall Employee Provident Fund (EPF) system in India. Let’s consider an example to understand the calculation of EPS in your salary.
Key Points to consider before calculation:
1. The EPS contribution is 8.33% of the employee’s basic salary and Dearness Allowance (DA), subject to a maximum salary cap of ₹15,000 per month.
2. If the employee’s basic salary and DA exceed ₹15,000 per month, the EPS contribution is still calculated on ₹15,000.
Example Calculation:
Let’s assume an employee has:
Basic Salary of ₹30,000 per month & Dearness Allowance (DA) of ₹10,000 per month
Total Salary (Basic + DA): ₹40,000 per month
Steps to Calculate the EPS Contribution:
The maximum salary for EPS contribution is capped at ₹15,000 per month by the Government of India.
Now, calculate the EPS Contribution:
8.33% of ₹15,000 (capped amount):
EPS Contribution = 8.33% of ₹15,000 = 0.0833 * ₹15,000 = ₹1,249.50
Since contributions are usually rounded to the nearest rupee, the EPS contribution would be ₹1,250 per month.
What’s the Difference Between EPF and EPS?
The Difference Between EPF and EPS is, EPF is a plan in which both the company and the employee pay a portion of the employee’s wage. EPS, on the other hand, is exclusively contributed to by an employer.
While you’re likely to get confused between these two schemes and mistake them as one, you should know they are different. There are several points of differences between EPF and EPS, such as:
| EPF | EPS | |
| Applicability | Any organisation above 20 employees is applicable for EPF | Applied for people who are members of EPFO (Employee Provident Fund Organisation) |
| Employee Eligibility | All employees are eligible | Employees with a salary and dearness allowance of up to ₹15,000 are eligible |
| Employee Contribution | 12% of the employee’s dearness allowance and salary. | No contributions to be made by the employee |
| Employer Contribution | 3.67% of the employee’s salary & Dearness Allowance | 8.33% of the employee’s salary and dearness allowance |
| Contribution Limit | 12% of the salary | 8.33% on a salary of up to ₹15,000 |
| Interest Rate | Every month, the fixed interest rate is calculated and reflected by the end of a financial year | Not applied |
| Withdrawal Age | Can withdraw after 58, and unemployed individuals can withdraw in a continuous trial of more than two months | You start receiving a pension after the age of 58 |
| Premature Withdrawal | If specific criteria are fulfilled, partial withdrawal is allowed for exceptional cases like unemployment, loan repayment, child’s education, or marriage | You receive an early pension after the age of 50, and you can withdraw some amount prematurely after 58 or after completion of your service before ten years |
| Financial Benefits | You can withdraw the entire invested amount with interest after retirement | You receive a lifelong pension after retirement. If the EPS member dies, the nominee is paid |
| Tax Benefits | Up to ₹1.5 Lakh deducted from employee contribution | There’s no tax deduction since there’s no employee contribution |
| Tax Applicability | The interest on your EPF account is tax-exempt, but if the contribution is above ₹2.5 Lakh yearly, you must pay tax on the interest earned. TDS of 10% is deducted for withdrawal of EPF before five years | Tax is deducted when receiving a pension or a lump sum |
Although both EPF and EPS are two different schemes, they both have one common goal – employee welfare. EPF and EPS are meant to help you save for your retirement and plan your retirement accordingly.
FAQs:
Are EPF and EPS account numbers the same?
Yes. Every member of the EPS has a member ID that is the same member ID received with an EPF account.
Is EPF or EPS account transferable?
Since both of these accounts, EPS and EPF, have a UAN (Unified Account Number), they are transferable.
What happens to EPS if EPF is transferred?
The EPF amount will not be reflected in your EPF passbook.
What is a scheme certificate?
A scheme certificate is issued by the EPFO to its members, certifying the member’s amount and interest earned on it. Employees who want to leave the organisation and want the accumulated funds to be transferred from the existing EPF to a new EPF account are given this certificate to get their pension benefits based on the number of service years and contributions to EPS.
