EPF vs EPS

When it comes to retirement planning, understanding the various options available is essential to make informed decisions. Two commonly used retirement schemes in India are the Employee Provident Fund (EPF) and the Employee Pension Scheme (EPS). While both are retirement schemes, there are several differences between EPF and EPS that every employee should know. 

In this blog post, we will explore the difference between EPF and EPS and highlight the key factors that employees need to consider when choosing between the two. So, if you are wondering which is better, epf vs eps, keep reading to find out.
 

What is the EPF Scheme?

The Employees' Provident Fund (EPF) Scheme is a fixed-income retirement benefits scheme available to employees in the corporate sector. The scheme provides financial security to employees during their retirement years by building a retirement corpus through regular investments made by both the employee and the employer.

One of the notable features of the scheme is that it permits employees to withdraw from it after completing five years of service for specific financial needs, such as purchasing a house, repaying a home loan, or pursuing higher education. Furthermore, employees can access the retirement corpus after turning 58 years old or after remaining unemployed for 60 days or more.

The EPF Scheme is an "exempt, exempt, exempt" scheme, which implies that the investments made, interest earned, and benefits received are all exempt from tax. The scheme earns regular interest at a fixed rate determined by the Government, which is reviewed periodically.
 

What is the EPS?

The Employee Pension Scheme (EPS) is a scheme offered by the Employee Provident Fund Organization (EPFO) that provides pensions to eligible employees. The scheme is available to employees earning salaries up to Rs.15,000 and is designed to offer financial security during their retirement years.

Under the EPS, the employer contributes 8.67% of the employee's salary, up to a maximum of Rs. 1250, to the employee's EPS account. The account accumulates over the employee's service period, and pension payments are made from the accumulated balance when the employee retires.

One of the unique features of the EPS is that only the employer contributes to the scheme, and no interest income accumulates on the balance. However, the pension is payable after the employee attains the age of 58 years. Alternatively, the employee can also avail of an early pension after reaching 50 years of age. If an employee has not completed ten years of service or has attained 50 years of age, a lump-sum withdrawal can be made.

The pension is paid throughout the employee's lifetime, and in case of their death, the pension payments continue to be made to their nominee. The amount of pension paid is calculated based on the length of service and the average monthly pay in the last 12 months of service of the employee.
 

Benefits of EPF

As a popular and lucrative saving scheme, the Employee Provident Fund (EPF) offers several benefits to its members. Let us examine the key advantages of the scheme in detail:

●    Tax-saving benefits

The EPF scheme offers tax-saving benefits as the contribution made by the employee is tax-deductible under Section 80C of the Income Tax Act, 1961. The interest earned on the corpus is also tax-free. Additionally, the corpus amount remains tax-free if withdrawn after the completion of 5 years.

●    Capital appreciation

The EPF scheme offers capital appreciation because the interest rate of this scheme is set by the Government of India, and the contributions to the fund are made on a monthly basis.

●    Retirement corpus

The EPF scheme helps in building a retirement corpus. This corpus helps the retired employee have a sense of financial security and independence.

●    Financial emergency

The EPF account's accumulated fund can be utilized during unforeseen circumstances like financial emergencies. In such cases, the employee can make a partial withdrawal from the fund for specific purposes.

●    Unemployment

Under the EPF scheme, employees can avail of benefits during periods of unemployment as well. If an employee loses their job, they can withdraw 75% of the accumulated fund after one month of unemployment. The remaining 25% of the fund can be withdrawn after two months of unemployment.

●    Death benefits

If the employee passes away, the nominee is entitled to receive the entire EPF corpus amount, which can provide financial assistance to the family during challenging circumstances.

●    Easy access

The Universal Account Number (UAN) offers easy access to employees to their PF accounts through the EPF member portal. Employees can transfer their PF account whenever they change jobs.
 

Benefits of EPS

The Employee Pension Scheme (EPS) offers numerous benefits to all eligible members of the Employees' Provident Fund Organization (EPFO) in India. Whether it's financial security during retirement, total disablement, or in the unfortunate event of a member's death, the EPS scheme provides crucial support to members and their families.

●    Pension upon Reaching Retirement Age

EPS members become eligible for pension benefits at the retirement age, which is 58 years. However, to avail of these benefits, members must provide at least ten years of service when they reach 58 years of age. A member is issued an EPS Scheme Certificate that can be used to fill out Form 10D and withdraw monthly pension benefits.

●    Pension on Early Departure from Service

In case a member cannot complete ten years of service before attaining the age of 58 years, they can withdraw the entire sum when they reach 58 years of age by filling out Form 10C. It is essential to note that the member will not receive monthly pension benefits after retirement.

●    Pension for Total Disablement During Employment

A member of EPFO who becomes disabled permanently is given a monthly pension, regardless of whether they have completed the pensionable service period. The employer must deposit funds in their EPS account for a minimum of one month to be eligible for the pension. The member becomes eligible for monthly pension benefits from the date of permanent disablement, payable for their lifetime, and may undergo a medical examination to determine their inability to work.

●    Pension for the Family in Case of Member's Demise

In case of a member's death while in service, their family becomes eligible for pension benefits if the employer has deposited funds in their EPS account for at least one month. Similarly, if the member has completed ten years of service and passes away before turning 58 years old, their family becomes eligible for pension benefits. In case of death after the commencement of the monthly pension, the family can continue receiving the pension benefits.
 

EPF vs EPS - Difference Between EPF and EPS

There is a significant difference between EPF and EPS schemes, including the contribution limits, applicability, withdrawal rules, and tax benefits. Here's a summary table comparing EPF vs EPS for easy reference.

Now that we know the difference between EPF and EPS, let's delve into the calculation methods for both schemes.

Calculation of EPF

The calculation of EPF contributions is a straightforward process. Let's take an example where an employee's basic salary and dearness allowance amount to Rs 14,000. In this case, the employee's contribution towards EPF would be 12% of Rs 14,000, which amounts to Rs 1,680. Similarly, the employer's contribution towards EPF would be 3.67% of Rs 14,000, which amounts to Rs 514.

Apart from EPF, there is also the EPS, or Employee Pension Scheme, which is a part of the EPF scheme. The employer contributes 8.33% of the employee's salary towards the EPS, and this contribution is separate from the EPF contribution. In the example above, the employer's contribution towards EPS would be 8.33% of Rs 14,000, which amounts to Rs 1,166.

Therefore, the total contribution towards the EPF account of the employee would be the sum of the employee and employer contributions towards EPF, which amounts to Rs 2,194. This contribution is then invested and earns interest, which helps grow the EPF balance over time.
 

Calculation of EPS

To calculate the monthly pension amount under the EPS, a formula is used which takes into account the pensionable service and the pensionable salary of the member. The formula is as follows:

Monthly pension = (Pensionable Service x Pensionable Salary)/70

For instance, let's consider an individual with a basic salary and dearness allowance of Rs.25,000. The employer's contribution made to the EPS is 8.33% of Rs.25,000, which amounts to Rs.2,082.50. However, the maximum amount of pension that can be contributed is Rs.1,250. Therefore, any surplus amount will be added to the employer's contribution towards the EPF account.
 

Conclusion

Both EPF and EPS are important savings schemes for employees in India. While EPF focuses on creating a retirement corpus for employees, EPS provides pension benefits for employees after retirement. The differences between EPF and EPS in terms of contribution, applicability, withdrawal, benefits payable, interest, and tax benefits, make it important for employees to understand which scheme they are eligible for and how it can benefit them. Overall, the choice between EPF vs EPS depends on an individual's financial goals and retirement plans. It is important for employees to make informed decisions regarding their savings schemes to ensure financial security and stability in their retirement years.