Employees 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.
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.
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.
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:
|Any organisation above 20 employees is applicable for EPF
|Applied for people who are members of EPFO (Employee Provident Fund Organisation)
|All employees are eligible
|Employees with a salary and dearness allowance of up to ₹15,000 are eligible
|12% of the employee’s dearness allowance and salary
|No contributions to be made by the employee
|3.67% of the employee’s dearness allowance and salary
|8.33% of the employee’s dearness allowance and salary
|12% of the salary
|8.33% on a salary of up to ₹15,000
|Every month, the fixed interest rate is calculated and reflected by the end of a financial year
|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
|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
|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
|Up to ₹1.5 Lakh deducted from employee contribution
|There’s no tax deduction since there’s no employee contribution
|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 the 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.