An Employee Provident Fund is a pension scheme which is compulsory for Indian organisations. Under this plan, the employer & employee contribute a specific percentage of the salary amount, which gets accumulated, hence providing financial security post-retirement.Where EPF helps build the retirement funds, EPS, on the other hand, offers a monthly pension. To ascertain the pension amount that would be received under EPS, a pension calculator can also be used.
What is EPS?
An employee pension scheme is an Employees Provident Fund Organisation (EPFO) managed scheme that acts as a retirement savings plan for the employees. All the members are enrolled in this scheme on their own when they join an organisation. It is a government-backed scheme that provides employees with financial security after their retirement. Under this plan, both the employer & employee contribute 12% of the employee’s salary, i.e. basic salary & dearness allowance.
What is EPF?
Employee Provident Fund is a pension plan under which both the employer & employee contribute 12% of basic salary & dearness allowance to the EPF account.
It makes the total contribution 24%. The funds contributed get accumulated throughout their employment, after which they can be withdrawn. It allows total withdrawal of funds post-retirement, though it also allows partial withdrawal before retirement.
Difference Between EPS& EPF
| Basis of Difference | EPS | EPF |
| Applicability | It applies to those individuals who are EPFO members & contribute to the EPS account. | It applies to those organisations having more than 20 employees. |
| Contribution of an Employee | Nil | 12% of the basic salary plus the dearness allowance of an employee |
| Contribution of an Employer | 8.33% of the basic salary plus the dearness allowance of an employee | The total contribution of an employer is 12%, which includes 3.67% to EPS, & the remaining goes to EPS. |
| Eligible Employees | It is mandatory for those employees having a salary plus dearness allowance up to INR 15000. | It is mandatory for those employees having a salary up to INR 15000. |
| Limitation on Contributions | 8.33% of the salary, up to INR 15,000. | 12% of INR 15000 |
| Interest Rate | No interest rate is applied. | It is calculated & analyzed by the Indian government to be paid at the end of the financial year. |
| Minimum or Maximum Limit on Deposit | 8.33% of the salary, up to INR 15,000. | 12% of salary |
| Financial Benefits | It includes the receipt of the regular pension amount | Amount deposited along with interest can be withdrawn post-retirement |
| Age of Withdrawal | After 58 years age of, the pension amount would be received. | It can be withdrawn once you attain the age of 58 years or have been unemployed for more than 2 continuous months. |
| Applicable Taxes | The pension amount received is taxable. | The interest amount received is exempt from tax. In case the contribution amount is above INR 2.5 lakhs, tax would be payable. In case of premature withdrawal before 5 years, 10% TDS would be deducted. |
| Taxation Benefit | No deduction of taxation is allowed. | A tax deduction of up to INR 1,50,000 of the contribution of the employee. |
EPS Calculation
Formula: EPS = (Service Period in Years x Pensionable Salary) / 70
- Employer’s Contribution: 8.33% towards basic salary of the employee & dearness allowance, a maximum of up to INR 15000.
- Pension Amount: Average salary of the last 5 years & the total number of years of service.
EPF Calculation
- Employer’s Contribution: 3.67% towards EPF & 8.33% towards EPS.
- Employee’s Contribution: 12% of Basic Salary + Dearness Allowance.
EPS Eligibility Criteria
- An employee must be a member of EPFO.
- He/ she must have completed a minimum of 10 years of service.
- The minimum age of an employee in case of early pension must be 50 years,& 58 years in case of regular pension.
- In case the employee starts taking pension after attaining the age of 60 years, i.e. postponed by 2 years, he will receive the pension along with an interest of @4%.
EPF Eligibility Criteria
- This scheme applies to all states of India.
- An employee earning a salary of INR 15000 per month is required to get registered for an EPF account.
- In case an employee is earning a salary above INR 15000 per month & wants to get registered under EPF, they have to take prior permission from the Assistant PF commissioner.
- It is mandatory for companies to get registered under the EPF program if they have more than 20 employees.
- Companies with fewer than 20 employees can voluntarily register for the EPF program.
EPS Benefits
- It offers employees an additional pension benefit, i.e. a fixed income at an early age of 50 years or after retirement, i.e. 58 years.
- The eligible employees, i.e. EPFO members will receive a pension for life.
- In case of the death of an employee, the pension benefit will be received by their family members.
- The pension amount can be withdrawn by the eligible employees in case of being unemployed for up to 2 months or more.
EPF Benefits
- It allows withdrawal of funds in case of emergency situations.
- In case of the death of an employee, the PF benefit will be received by their legal heirs.
- It offers financial security by letting employers contribute to the PF fund, & the pension amount is determined by the employees.
- It allows a deduction of tax on any contribution made by either the employer or the employee to the provident fund.
- Interest amount received on investments made in a provident fund is exempt from tax.
- These are risk-free investments.
- EPFO allows the transfer of the account in case an employee changes the organisation.
Conclusion
EPF & EPS both play a crucial role in pension planning, but differently. This means EPF helps in the accumulation of wealth by providing a lump sum amount to meet post-retirement expenses. &, EPS, on the other hand &, offers a continuous pension on a monthly basis to ensure financial security during the retirement period.You can make an informed decision by understanding the benefits, rules, functionality, etc., of both plans.
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