Maximize tax savings
up to ₹46,800 easily
0% commission • Earn upto 1.5% extra returns
Employee’s Provident Fund (EPF) and Employee Pension Scheme (EPS) are framed under the Employee’s Provident Fund & Miscellaneous Provisions Act, 1952. The schemes are administered by the central board of trustees that consist of representatives of government (both central and state), employers and employees.
Let us know more about EPF and EPS in this article:
The provident fund scheme promotes savings towards the retirement of an individual. The scheme provides that both the employer and the employee of an establishment contribute to the employee’s provident fund account. The contribution gets accumulated until the individual’s entire working period, and the employee can withdraw a lump-sum amount with interest after retirement.
The scheme offers regular interest on investments made in the EPF account. For the financial year 2019-20, the interest rate offered on the EPF account is 8.5%. The employer and the employee’s contribution, each in EPF account, shall be at 12% of the employee’s salary (basic salary and dearness allowance).
An EPF member can withdraw the balance amount in EPF only after retirement from the regular paying job. The 75% of the EPF corpus can be withdrawn after one month of exit from the job and the balance 25% after two months of exit.
However, the individual can apply for PF withdrawal before the maturity period only in exceptional cases like marriage or education of children, loan repayment, unemployment, etc.
If the EPF corpus amount is withdrawn before completion of 5 years, then 10% tax is deducted.
The Pension scheme pays a pension to the employees who are members of EPFO and have contributed to the EPS account. On the death of an employee, pension continues to be paid to the nominee. Employee’s don’t contribute to the EPS account. Employer’s contribution is 8.33% of the employee’s salary (basic + dearness allowance). Pension from such scheme is received to the employee after the age of 58 years.
Monthly pension = (Average last 12 months salary x No. of years worked )/70
A person is eligible to withdraw a lump sum amount of EPS, earlier of below two situations :
If the member exits from employment with less than 10 years in service when his age is less than 58 years, he can opt to get a scheme certificate to join another job and retain the EPFO membership. The scheme certificate is issued to him after the completion of 10 years of service.
The scheme certificate can also be applied if the member withdraws EPF contribution and wants to receive pension benefits after 58 years. It is also useful to claim a family pension by the family members on the eligible member’s death.
The members contributing to the scheme are allotted a Universal Account Number (UAN) by the Employees Provident Fund Organisation (EPFO). The UAN is the same throughout the member’s employment life, and all other relevant details can be accessed through the same. In case the employee changes the job, he can continue his contribution towards the EPF account after updating his UAN number to the new employer. To transfer funds online, activate UAN and link aadhaar and PAN with it.
EPF and EPS both are retirement benefit plans but different. Let’s understand from the below table:
|Employee’s contribution||12% of basic salary and dearness allowance||Nil|
|Employer’s contribution||3.67% of basic salary and dearness allowance paid to the employee||8.33% of the basic salary and dearness allowance paid to the employee|
|Eligible employees||All||Employees whose salary + dearness allowance is up to Rs.15,000|
|Interest on investment||Interest is calculated every month and paid at the end of the FY. The interest rates are fixed and reviewed by the government regularly.||No interest is paid on the EPS account|
|Maximum contribution||The contribution is 12% on salary.||The Contribution is limited to 8.33% on salary up to Rs.15,000, i.e. Rs. 1250|
|Tax||Interest received on EPF account is exempt|
But if the contribution is more than Rs.2.5 lakh in any year. Then tax is payable on excess amounts.
If the balance amount in EPF is withdrawn before 5 years, then TDS @10% is deducted.
No tax on principal amount redemption
|Pension and lump-sum amount both are taxable when received.|
|Withdrawal of funds||After 58 years of age or if unemployed for a continuous period of 60 days or more||Pension is received after 58 years of age.|
|Premature Withdrawal||Partial withdrawal is allowed for exceptional cases like marriage or education of children, loan repayment, unemployment, etc., if specific criteria are fulfilled.||An early pension can be received after 50 years. |
A lump-sum amount can be withdrawn if 58 years of age is attained or service is completed in less than 10 years, whichever is earlier.
|Premature Withdrawal amount||Full EPF balance can be withdrawn||The amount can be withdrawn depending upon the years of service.|
|80C deduction||Deduction on up to Rs.1.5 lakh of employee’s contribution||No deduction allowed as employee contribution is Nil|