The EPF scheme (EPF full form – employee provident fund) is a mandatory scheme for corporates that fulfils the eligibility criteria specified in the Employees Provident Fund & Miscellaneous Provisions Act, 1952.
Under the EPF pension scheme, both the employer and employee contribute to the EPF Account. The contribution is done at 12% of the salary including dearness allowance.
Along with the EPF scheme, the EPS scheme is also offered to employees. EPS eps full form is Employee Pension Scheme and it is offered to employees whose basic salary plus dearness allowance is up to Rs.15, 000. Under the EPS scheme, the employer contributes to the scheme, not the employee.
Of the 12% of the employer’s contribution, 8.33% of the salary is directed to the EPS account and 3.67% of the salary is directed to the EPF scheme. On the other hand, 12% of the employee’s contribution is directed solely to the EPF Account. Let’s understand the schemes in detail.
The Employees’ Provident Fund Scheme is a fixed income retirement benefits scheme that is available for employees in the corporate sector. The scheme builds up a retirement corpus through regular investments by both the employee and the employer. This retirement corpus can be availed after 58 years of age or if the employee is unemployed for 60 days or more.
Here are some of the features of the scheme –
The Employee Pension Scheme is a scheme that pays pensions to employees. This scheme is available to employees who are members of the EPFO. Moreover, employees earning salaries up to Rs.15, 000 are eligible for the scheme. Under the scheme, the employer contributes 8.67% of the employee’s salary, up to Rs.1250, to the EPS account.
This account accumulates over the service period of the employee and then, when the employee retires, pension payment is done from the accumulated balance. The features of the scheme are as follows –
(Average salary over the last 12 months of service * pensionable service) / 70
Pensionable service is the number of years worked by the employee
Both the EPF and EPS schemes are different. There are a lot of differences between EPF and EPS schemes. Let’s have a look –
|Point of difference||EPF||EPS|
|Contribution to the scheme||An employee contributes 12% of the salary + dearness allowance
The employer contributes 3.67% of the salary + dearness allowance
|An employee contributes nothing. The employer contributes 8.33% of the salary + dearness allowance|
|Contribution limit||There is no absolute limit. The limit is expressed as a percentage of the salary + dearness allowance||The contribution is limited to Rs.1250 per month|
|Applicability||EPF is available for all employees||EPS is available for employees whose salary + dearness allowance is within Rs.15,000|
|Withdrawal from the account||Employees can withdraw from the EPF scheme anytime. If the amount is withdrawn before the completion of 5 years of service, the withdrawn amount is taxable. However, if the employee is unemployed for a continuous period of 60 days, the EPF balance can be completely withdrawn||Early lump sum withdrawal can be done if less than 10 years of service has been completed or if the member has attained 58 years of age, whichever is earlier.
For receiving early pensions, the employee should have completed 50 years of age.
|Benefit payable||The lump-sum benefit is payable after retirement after reaching 58 years of age or if the employee is unemployed for a continuous period of 60 days||Regular pension is paid when the employee attains 58 years of age. On the death of the employee, the pension continues to be paid to the nominee|
|Interest||A fixed rate of interest is paid on the balance on the EPF Account. The rate is reviewed and fixed by the Government every quarter. The current rate of interest is 8.15% per annum||No interest is declared on the EPS account|
|Tax benefit||The amount invested returns earned and the amount redeemed are all completely exempted from tax||Since employees do not contribute to the EPS, they do not get any tax benefits on investments. Lump-sum withdrawal is taxable. Moreover, the pension paid under the scheme is also taxable|
So, the EPF and EPS schemes are both employee welfare schemes that are, however, different from one another. Understand the difference between EPF and EPS if you are a salaried employee to understand the benefits which you are eligible for under these schemes.
While the EPF scheme would give you a lump sum retirement benefit, the EPS scheme would give you lifelong income. Both these schemes are, therefore, beneficial for the retirement planning of employees and help them create savings for their retirement.