EPF Vs EPS: In a bid to secure the financial future of employees, India offers two major retirement schemes: the Employees' Provident Fund (EPF) and the Employee Pension Scheme (EPS). While both schemes aim to support employees in their post-retirement lives, there are notable differences that employees must understand.
What is the Employees' Provident Fund (EPF)?
The EPF is a social security initiative designed to help employees accumulate a retirement corpus. Under this scheme, both employees and employers contribute a portion of the employee's salary monthly, creating a substantial fund over time. Upon retirement, employees receive a lump sum, ensuring financial stability in their later years.
What is the Employee Pension Scheme (EPS)?
The EPS, a component of the EPF, focuses on providing a pension rather than a lump sum. While EPF ensures savings, EPS guarantees regular monthly income post-retirement to eligible employees.
Key Differences Between EPF and EPS
| Aspect | EPF | EPS |
|---|---|---|
| Contributions | Employees contribute 12 per cent of salary + dearness allowance (DA), while employers contribute 3.67 per cent. | Employees do not contribute. Employers contribute 8.33 per cent of salary + DA from their EPF share. |
| Contribution Limit | No fixed ceiling; based on a percentage of salary + DA. | Monthly contribution capped at Rs 1,250. |
| Eligibility | Available to all employees covered under EPF. | Available only to employees earning up to Rs 15,000 as salary + DA. |
| Withdrawals | Allowed anytime, with taxation if withdrawn before five years of service. | Early withdrawal allowed for employees with less than 10 years of service or upon turning 58. |
| Benefit Type | Lump sum payable upon retirement or 60 days of unemployment. | Regular pension post-retirement or for nominees in case of the employee’s demise. |
| Interest | Earns annual interest, currently 8.15 per cent, as determined by the Government. | No interest accrues on contributions. |
| Taxation | Fully tax-exempt (investment, interest, and maturity amount). | Pension payments and lump sum withdrawals are taxable. |
How EPF and EPS Work Together
The EPF and EPS complement each other to provide comprehensive financial security. EPF builds a retirement corpus, while EPS ensures a steady income during retirement. Together, these schemes create a robust safety net for employees, safeguarding their financial independence in their golden years.
Understanding the distinctions between these two schemes can help employees make informed decisions about their retirement planning and maximise their benefits.
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