Read this blog to understand the differences between EPS and EPF in India.
Many salaried employees contribute to EPF and EPS without fully understanding the difference between them. The confusion usually revolves around contribution percentages, benefits, and withdrawal rules. This article explains the difference between EPF and EPS, their key features, and which one is more beneficial in different scenarios.
What is the Difference between EPF and EPS?
EPF (Employees’ Provident Fund) is a retirement savings scheme where both the employee and employer contribute. EPS (Employees’ Pension Scheme) is a pension benefit plan funded by the employer. EPF builds a lump sum retirement corpus, while EPS provides a monthly pension after retirement. EPF allows full withdrawal, but EPS has restricted withdrawal rules.
EPF vs EPS: Key Differences
|
Factor |
EPF (Employees’ Provident Fund) |
EPS (Employees’ Pension Scheme) |
| Purpose | Retirement savings and lump sum corpus | Provides a monthly pension after retirement |
| Employee Contribution | 12% of Basic Salary + DA | No contribution |
| Employer Contribution | 3.67% of Basic Salary + DA | 8.33% of Basic Salary + DA (Capped at ₹15,000) |
| Interest Rate | Annually revised | No interest earned |
| Tax Benefits | Contributions qualify for 80C tax deduction, interest tax-free after 5 years | Monthly pension is taxable as per income slab |
| Withdrawal Rules | Full withdrawal at retirement or after two months of unemployment; partial withdrawals allowed for specific needs | Withdrawable as a lump sum if service is below 10 years; mandatory pension if service exceeds 10 years |
| Eligibility | All salaried employees under EPFO | Minimum 10 years of service required for pension |
| Pensionable Salary | Not applicable (lump sum benefit) | Average of last 60 months’ salary before retirement |
Both EPF and EPS serve different retirement needs—EPF builds a lump sum corpus, while EPS provides a steady pension after retirement.
What is EPF?
EPF (Employees’ Provident Fund) is a retirement savings scheme managed by the Employees’ Provident Fund Organisation (EPFO). It helps salaried employees build a retirement corpus through monthly contributions from both the employee and employer.
EPF Contribution Breakdown
| Contributor | Contribution (% of Basic Salary + DA) |
| Employee | 12% |
| Employer | 12% (8.33% to EPS, 3.67% to EPF) |
EPF Interest Rate
The EPF interest rate is revised annually by the government. The current rate is {specify}% per annum.
EPF Withdrawal Rules
- Full withdrawal is allowed at retirement or after two months of unemployment.
- Partial withdrawal is permitted for education, marriage, home purchase, or medical emergencies.
Tax Benefits for EPF
EPF contributions qualify for tax deductions under Section 80C of the Income Tax Act, up to ₹1.5 lakh per year. Interest earned is tax-free if withdrawn after five years of continuous service.
What is EPS?
EPS (Employees’ Pension Scheme) is a pension scheme managed by the Employees’ Provident Fund Organisation (EPFO). It provides a monthly pension after retirement to employees who meet the eligibility criteria. Unlike EPF, only the employer contributes to EPS.
EPS Contribution Breakdown
| Contributor | Contribution |
| Employer | 8.33% of Basic Salary + DA (up to ₹15,000 salary cap) |
| Employee | No contribution |
Eligibility for Pension
- Minimum 10 years of service required.
- Pension starts at 58 years (early pension at 50 years with reduced benefits).
Withdrawal Rules for EPS
| Service Duration | Withdrawal Option |
| Less than 10 years | Can withdraw as a lump sum |
| 10 years or more | Mandatory pension eligibility |
EPS Tax Implications
- Monthly pension is taxable as per the individual’s income tax slab.
- Lump sum withdrawal before 10 years of service is tax-free.
EPF vs EPS: Which One Suits You Best?
Choosing between EPF and EPS depends on your financial goals and job stability.
EPF is Better For:
- Employees who want higher lump sum savings at retirement.
- Those who frequently switch jobs and withdraw funds.
- Individuals who prefer higher interest returns on their savings.
EPS is Better For:
- Employees looking for pension security after retirement.
- Those planning long-term employment (10+ years) to qualify for a pension.
People in lower tax brackets, as pension income is taxable.
FAQs on Difference between EPF and EPS
What are the tax implications of EPF and EPS contributions?
EPF contributions qualify for a tax deduction under Section 80C up to ₹1.5 lakh. Interest earned is tax-free if withdrawn after five years of continuous service. EPS pension is taxable as per the individual’s income slab.
Can employees transfer their EPF and EPS accounts when they change jobs?
Yes, EPF can be transferred online using the Universal Account Number (UAN). EPS is linked to the EPF account and gets automatically transferred, but the pension amount is credited based on total years of service.
Is there any difference between EPF and EPS nomination?
Yes, EPF allows multiple nominees, including non-family members. In EPS, only family members can be nominated, and the pension is provided to the nominee only if the employee has completed 10 years of service.
What is EPF and EPS contribution percentage?
Employees contribute 12% of Basic Salary + DA to EPF. Employers contribute 8.33% to EPS (up to ₹15,000 salary cap) and 3.67% to EPF.
Can one withdraw money from EPF and EPS before retirement?
EPF can be partially withdrawn for education, marriage, home loans, or medical emergencies and fully withdrawn after two months of unemployment. EPS can be withdrawn as a lump sum only if service is less than 10 years; otherwise, a pension is provided after retirement.
