EPF vs EPS

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The Government of India, in its ardent effort to promote a sense of saving in Indians, has launched a variety of savings schemes for salaried employees. Among these, are the EPF and the EPS schemes. EPF stands for Employee Provident Fund and EPS stands for Employee Pension Scheme. Although both schemes are aimed at generating savings and building wealth for an employee’s future, especially for retirement, the schemes have some key differences that are worth noting. Before you know about how the schemes differ, you should learn about the schemes themselves. 

Also Read: EPFO: Understanding the Scheme and Benefits

Two Savings Schemes

The Employee Provident Scheme was launched by the EPFO (Employee Provident Fund Organisation) on behalf of the Indian government. It is a mandatory scheme that those companies that are registered with the Employees Provident Fund and Provisions Act (1952) adopt. One of the key criteria of any company offering this scheme to employees is that it must have 20 employees or more. In the EPF scheme, the employer and employee make a contribution towards the employee’s EPF account. This contribution is fixed at 12% (per year) of the employee’s basic salary and dearness allowance. 

The EPS (Employee Pension Scheme) is also a savings scheme that is made available to employees in Private and Public Sector companies in India. It is offered to those employees whose basic salary plus dearness allowance comprises Rs. 15, 000. In the case of EPS, a contribution to the EPS account is only made by the employer and not the employee. 

What is the EPF?

The EPF, introduced by the EPFO, is a savings scheme introduced by the EPFO. This scheme is geared towards collecting a corpus for the retirement period of employees. Regular investments (contributions) are made by the employer and the employee with a view to building a corpus for the retirement expenses of employees. The corpus can be obtained after the employee reaches the age of retirement, that is, 58 years of age. The balance in the EPF account can also be withdrawn by the said employee after the employee has been unemployed for a period of 2 months. Aligned with the regulations of the EPFO, here are some features of the EPF: 

  • Employees are able to make an entire withdrawal from the scheme after being consistently employed for a period of 5 years. Such a withdrawal may be made for specific reasons like paying for a marriage, medical emergencies, further education, buying a home, etc. 
  • The EPF scheme, as you will find out from the EPFO portal, is a scheme in which the investments made, interest earned and the benefit at maturity are exempt from taxation. 
  • The EPF scheme earns consistent interest that is determined by the Indian government and it may be revised according to government regulations. 

Also Read: EPF or PF Withdrawal Rules

What is the EPS?

The Employee Pension Scheme or EPS, as the name suggests, is a pension scheme for the benefit of employees of an organisation. The scheme is available to those who are members of the EPFO. The scheme is offered to employees who earn a salary of a maximum of Rs. 15,000. Under the EPS, the contribution made by the employer to the EPS account amounts to 8.67% of the employee’s basic salary. Similar to the EPF scheme, the amount invested in an EPS collects over time, till an employee retires, and is paid out. Here are some key features of the scheme:

  • Contributions to the EPS are made only by the employer.
  • The sum accumulated in an EPS account is paid to the employee at retirement at 58 years of age. The employee can also obtain the amount in an EPS account at the age of 50 under the “early pension” option.
  • No interest is earned on the amount in an EPS.
  • An employer can withdraw a lump sum from the EPS if the age of 50 is reached or if less than 10 years of active service has been achieved.

EPF vs EPS – Key Differences

While the EPFO manages and administers both the EPF and EPS, there are key differences between the schemes that individuals should be clear about. By now you may be familiar with some of these, but, based on certain parameters, they are highlighted below: 

  • Eligibility

The EPF is available to all employees belonging to any organisation with employees amounting to 20 or more. The EPS is available to employees who earn a basic salary plus a dearness allowance of a maximum of Rs. 15,000 only. 

  • The Limit of the Contribution

The limit of the EPF contribution is based on a pre-determined amount, taken as a percentage, of the employee’s basic salary plus the dearness allowance. The limit of the EPS contribution can amount to a maximum of Rs. 1,250 according to the maximum basic salary plus dearness amount of Rs. 15,000. 

  • The Contributor

With regard to an EPF account, an employee and an employer contribute to the account. On the other hand, for an EPS, only an employer contributes to the account. 

  • Withdrawals

Employees may withdraw amounts from an EPF at any time. However, if an entire withdrawal from the scheme is made before 5 years of active service, then the amount withdrawn is taxable. Additionally, if an employee remains unemployed for a period of 2 months, the entire EPF sum may be withdrawn. 

For an EPS withdrawal, an early withdrawal of a lump sum can be undertaken if an employee has been employed for less than 10 years, or has reached 58 years of age. If an employee wishes to avail of early pensions, they must have reached the age of 50 years. 

  • Interest

A fixed rate of interest of 8.15% is accrued on the amount in an EPF account. An EPS account accrues no interest. 

  • Payout/Benefit

A lump sum is paid out to the employee at the age of 58 years as a maturity benefit in an EPF account. For an employee with an EPS account, a regular pension is paid when an employee reaches 58 years of age. In the event of the unfortunate demise of the employee, the pension continues and is paid to the nominee. 

  • Taxation

For an employee availing of EPF, there is no taxation on amounts that are collected with interest and are paid out when the appropriate maturity period is reached. Taxation applies when premature withdrawals are made. Any lump sum withdrawal from an EPS account is taxable and the pension paid is also liable for taxation. 

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