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EPF vs. EPS: Understanding the Difference Between Them

Q: Is EPF or EPS transferable?

The Employees Provident Fund Organisation (EPFO) assigns a Universal Account Number (UAN) to the participants who make contributions to the plan. All additional pertinent information can be accessed using the same UAN, which remains constant throughout the member's employment history. After renewing his UAN number with the new employer, the employee can continue to contribute to the EPF account in the event that he changes jobs. Activate your UAN and link your PAN and Aadhaar to it in order to send money online.

Making educated judgments regarding retirement planning requires an awareness of the different possibilities accessible. The Employee Provident Fund (EPF) and the Employee Pension Scheme (EPS) are two popular retirement plans in India. Even though they are both retirement plans, every employee should be aware of the various distinctions between EPS and EPF. We will examine the distinctions between EPS and EPF in this blog article and emphasise the important aspects that workers must take into account when making their decision.

EPF Full Form: What is the Employee Provident Fund?

The provident fund program encourages people to save money for their retirement. According to the plan, both the employer and the worker at a company must make contributions to the worker's provident fund account. Contributions are accrued during the course of the employee's employment, and at retirement, they can be taken out in full, plus interest. Investments made in the EPF account are eligible for regular interest payments under the system. The interest rate available on the EPF account for the fiscal year 2023–2024 is 8.25%. Both the employer and the employee must contribute 12% of their respective salaries (base salary plus dearness allowance) to the employee's EPF account.

Features of EPF

Following five years of service, you are eligible to leave the program.
For certain financial circumstances, such as home loan repayment, further education, etc., this withdrawal is permitted.
The Employee Provident Fund (EPF) is a tax-free plan that allows for tax-free investments, interest, and benefits.
At a set rate, the plan generates interest on a regular basis. The government determines this interest, which is periodically evaluated.

Benefits of EPF

Because employee contributions are tax deductible under Section 80C of the Income Tax Act of 1961, the EPF plan provides tax savings advantages. Additionally, the corpus's interest is tax-free. Furthermore, if the corpus amount is taken after the five years have passed, it is still tax-free.
Since the Government of India sets the interest rate and fund contributions are made regularly, the Employee Provident Fund (EPF) system offers capital appreciation.
Building a retirement corpus is aided by the EPF scheme. The retired employee feels more independent and financially secure because of this corpus.
The money that has accumulated in the EPF account might be used in unexpected situations, such as financial emergencies. In some situations, the employee may take out a portion of the fund for designated uses.
Employees might also get benefits under the EPF plan while they are unemployed. After one month of unemployment, an employee who leaves their work is eligible to take 75% of the accrued fund. After two months of unemployment, the remaining 25% of the fund is available for withdrawal.
The nominee is entitled to the full EPF corpus amount in the event of the employee's death, which can help the family financially in trying times.
Employees can easily access their PF accounts via the EPF member portal by using their Universal Account Number (UAN). When an employee switches their job, they can also transfer their PF account.

Calculation of EPF

The process of calculating EPF contributions is simple. Consider a scenario in which an employee receives Rs 14,000 in dearness allowance in addition to their base pay. In this instance, the employee would contribute Rs 1,680, or 12% of Rs 14,000, to the Employee Provident Fund. In a similar vein, the employer would contribute Rs 514, or 3.67% of Rs 14,000, to the EPF. In addition to EPF, there is the Employee Pension Scheme (EPS), which is a component of the EPF program. 8.33% of the employee's pay is contributed by the employer to the EPS; this payment is distinct from the EPF contribution. The employer's EPS contribution in the aforementioned scenario would be Rs 1,166, or 8.33% of Rs 14,000. Consequently, the combination of the employer's and employee's EPF contributions, or Rs 2,194, would represent the employee's entire contribution to the EPF account. The EPF balance gradually increases as a result of the investment and interest earned from this contribution.

EPS Full Form: What is the Employee Pension Scheme?

The Employee Provident Fund Organisation (EPFO) offers pensions to qualified employees under the Employee Pension Scheme (EPS). Employees with incomes up to Rs. 15,000 are eligible for the initiative, which is intended to provide financial stability during their retirement years. Up to a maximum of Rs. 1250, the employer contributes 8.67% of the worker's pay to the worker's EPS account under the EPS. Over the course of the employee's employment, the account grows, and upon retirement, pension benefits are paid from the total amount.

Features of EPS

The Employee Pension Scheme is funded solely by the employer.
The scheme does not accrue interest income.
When an employee reaches the age of 58, they are eligible to receive their pension. It is also possible to receive an early pension after turning 50.
If the member has reached the age of fifty or has completed fewer than ten years of service, a lump-sum withdrawal may be made.
Pension payments are made for the duration of the employee's life. The nominee continues to receive the pension upon the employee's passing.

Benefits of EPS

When EPS members reach the retirement age of 58, they are eligible to receive pension payments. Members must, however, have served for at least ten years by the time they turn 58 in order to be eligible for these benefits. An EPS Scheme Certificate is given to a member, which they can use to complete Form 10D and take out their monthly pension income.
When a member reaches the age of 58, they can withdraw the full amount by completing Form 10C if they are unable to complete ten years of service before then. It is important to remember that after the member retires, they will no longer get monthly pension benefits.
Regardless of whether they have fulfilled the pensionable service period, an EPFO member who is permanently disabled receives a monthly pension. For the employer to be qualified for the pension, money must be deposited into their EPS account for at least one month. The member may have a medical examination to confirm their incapacity to work, and they are eligible to receive monthly pension benefits for the duration of their lives starting on the day of permanent disability.
If the employer has deposited money into the member's EPS account for a minimum of one month, the member's family is eligible for pension benefits in the event that the person passes away while still employed. In a similar vein, the member's family is entitled to pension payments if the member dies before turning 58 after completing ten years of service. The family may continue to receive pension benefits in the event of death after the monthly pension period has begun.

Calculation of EPS

A formula that considers the member's pensionable service and pensionable salary is used to determine the monthly pension amount under the EPS. The following is the formula:

(Pensionable Service x Pensionable Salary)/70 is the monthly pension.

Let's take the example of a person who receives a basic wage and a Rs. 25,000 dearness allowance. The employer has contributed Rs. 2,082.50, or 8.33% of Rs. 25,000, to the EPS. However, Rs. 1,250 is the most pension contribution that can be made. Consequently, any excess money will be added to the employer's EPF account contribution.

EPF vs. EPS: The Key Differences

The following table illustrates the key differences between EPF and EPS:

Point of Difference	EPF	EPS
Contribution to the scheme	The employer contributes 3.67% of the salary + dearness allowance to the Employee Provident Fund (EPF), while the employee contributes 12% of their salary plus dearness allowance.	The company contributes 8.33% of the wage + dearness allowance to the Employee Provident Fund (EPF), even when the employee does not.
Contribution limit	There exists no fixed cap to the contribution and the limit is denoted as a percentage of the salary and dearness allowance.	The monthly contribution is limited to Rs. 1250.
Applicability	Accessible to all employees.	Only for employees whose salary plus dearness allowance is under Rs. 15,000.
Withdrawal from the account	Workers are free to leave the EPF plan whenever they choose. The sum withdrawn is taxable if it occurs prior to the completion of five years of service. However, the whole EPF balance may be deducted if the employee is unemployed for 60 consecutive days.	A member may take an early lump sum withdrawal if they have served for fewer than ten years or if they are at least fifty-eight years old, whichever comes first. The employee must be at least 50 years old to be eligible for early pensions.
The benefit payable	When the employee reaches the age of 58 or has been unemployed for 60 consecutive days, the lump-sum compensation becomes due after retirement.	When the worker reaches the age of 58, a standard pension is due. The nominee will continue to receive pension payments in the event of the employee's death.
Interest	The balance in the EPF Account gets a fixed interest at a rate reviewed and determined by the Government every quarter. The current rate stands at 8.15%.	Does not accrue any interest.
Tax benefit	Taxes are not applied to the investment amount, returns, or redemption amount.	Employees are not eligible for any tax benefits on their investments because they do not contribute to the EPS. The pension received under the plan is likewise taxable, as is any lump-sum distribution from the plan.

Conclusion

Although EPF and EPS differ in a number of ways, both provide employees with countless advantages. The Indian government launched the EPF and EPS savings plans to encourage saving and make things easier for workers when they retire. Both of these plans offer fair interest on the amount accumulated and carry no risk of loss. In summary, the primary distinction between EPS and EPF as savings plans is that, in EPS, only the employer makes contributions and the employee does not, whereas, in EPF, both the employer and the employee make a contribution.

FAQ

Q1. To whom does EPF apply?

Employees of companies that are part of the Employees' Provident Fund Organisation (EPFO) are eligible for this savings plan.
When an organisation employs more than twenty people, it is required.
For paid workers making up to Rs. 15,000 (basic + dearness allowance), it is required.
Workers who earn more than Rs. 15,000 are eligible to voluntarily donate.

Q2. Can I withdraw EPF before maturity?

Only after retiring from regular paying employment may an EPF member take out the remaining sum. After one month of leaving the position, 75% of the EPF corpus can be taken, while the remaining 25% can be withdrawn after two months. However, only in extraordinary circumstances—such as marriage or child schooling, loan repayment, unemployment, etc.—can an individual request a PF withdrawal prior to the mature period. 10% tax is withheld if the EPF corpus amount is taken out before the five-year period has passed.

Q3. Is EPF or EPS transferable?

The Employees Provident Fund Organisation (EPFO) assigns a Universal Account Number (UAN) to the participants who make contributions to the plan. All additional pertinent information can be accessed using the same UAN, which remains constant throughout the member's employment history. After renewing his UAN number with the new employer, the employee can continue to contribute to the EPF account in the event that he changes jobs. Activate your UAN and link your PAN and Aadhaar to it in order to send money online.

Q4. What happens to EPS if PF is transferred?

The EPF amount will no longer reflect in your account passbook once it is transferred.

Q5. Can I withdraw from EPS?

Yes, the contributed amount can be withdrawn.

Q6. Are EPS and EPF numbers the same?

No, EPS and EPF figures are not interchangeable. Their figures also differ because these two systems are separate and have different employee accounts.

Q7. What is the major difference between EPF and EPS?

The primary distinction between EPS and EPF as savings plans is that, in EPS, only the employer makes contributions and the employee does not, whereas, in EPF, both the employer and the employee contribute a portion of the employee's pay.

Q8. Which is better, EPF or EPS?

Both EPS and EPF are savings plans that help workers live better financially once they retire. Each of these savings plans has advantages of its own. However, the primary distinction between EPS and EPF as savings plans is that, in EPS, only the employer makes contributions and the employee does not, whereas in EPF, both the employer and the employee contribute a portion of the employee's pay.

Q9. Can I withdraw the funds from my EPF account?

In specific situations, such as a medical emergency, house loan repayment, a child's wedding, education, home renovation, or unemployment, you are permitted to take out a portion of your EPF corpus.

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