EPF vs EPS: What's The Difference?

13 Mar, 2024

The retirement landscape in India is bolstered by two prominent schemes - the Employees' Provident Fund (EPF) and the Employee Pension Scheme (EPS). Both aim to fortify the financial future of employees, albeit with distinct features and objectives.

EPF, or Employees' Provident Fund, serves as a safety net designed to offer financial stability during retirement years. It operates as a savings scheme, with contributions from both employees and employers accumulating over the course of an individual's career.

Conversely, EPS, or Employee Pension Scheme, is an integral component of EPF, focusing specifically on pension benefits for eligible employees. While EPF ensures a lump-sum payout upon retirement, EPS guarantees a regular pension to qualifying individuals.

Differences between EPF and EPS are evident in various aspects including contribution mechanisms, eligibility criteria, withdrawal rules, and tax implications. EPF mandates a 12% contribution from employees, matched by a 3.67% contribution from employers, calculated on the salary and dearness allowance. In contrast, EPS does not require employee contributions, with employers allocating 8.33% of the salary plus dearness allowance to EPF.

While EPF contributions are uncapped, EPS imposes a monthly contribution ceiling of Rs. 1250. EPF is accessible to all employees, whereas EPS eligibility is limited to those with a salary plus dearness allowance below Rs. 15,000.

Withdrawal policies differ between the schemes; EPF allows flexible withdrawals, subject to taxation if made before completing 5 years of service. Conversely, EPS permits lump sum withdrawals under specific conditions such as completing less than 10 years of service or reaching 58 years of age.

In terms of benefits, EPF disburses a lump-sum amount upon retirement or prolonged unemployment, while EPS ensures a regular pension upon reaching 58 years of age. Interest accrual also varies; EPF balances earn interest at a government-set rate, while EPS accounts do not accrue interest.

Tax implications further distinguish the schemes; EPF investments and returns enjoy full tax exemption, while EPS contributions are not tax-deductible, and withdrawals are subject to taxation.

In summary, EPF and EPS, while distinct, collaborate to provide a comprehensive approach to securing employees' financial futures post-retirement. EPF offers a lump-sum corpus, while EPS guarantees a steady pension income, collectively contributing to a robust financial safety net for the workforce.


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