Comparisons Between EPF & EPS
To help secure the future of its citizens, the Indian government has launched many investments and saving schemes. Aimed at the security of salaried employees during their retirement days, the Employee Provident Fund (EPF) and the Employee Pension Scheme (EPS) are offered by the government of India. Both the EPF and EPS are pension schemes and are the most common long-term saving schemes.
Aimed at promoting long-term retirement savings, under the EPF scheme, the employer and the employee each contribute 12% of the employee’s basic salary. The employee can transfer the contributed EPF amount from one organisation to another if there is a change in job or withdraw the money if unemployed.
The EPF account holder can withdraw 75% of the total EPF if he/she is unemployed for a minimum of one month and the remaining 25% can be withdrawn after 2 months of being unemployed. The employer contributes 8.33% of the 12% towards the EPS account while the remaining 3.67% goes into the EPF account. The entire 12% contributed by the employee goes into the EPF account. If all the KYC details are updated on the EPFO website, the employee will be able to place a request online for the withdrawal of the EPF amount. If the KYC details do not match, the employee will need the help of the employer to withdraw the EPF amount.
EPF Interest Rate
The interest rate now is 8.55% for FY2017-18. Interest is tax-free and is calculated on the balance of the EPF account. The government of India decides the rate of interest every year. Interest will not be credited to an EPF account if considered inoperative. In case of withdrawn accounts, interest is not payable.
Benefits of EPF
Some of the key benefits of EPF are:
- For funds held in an EPF account, the interest earned is tax-free under certain conditions. Also, under 80C of the Income Tax Act, tax is deductible for contributions made towards an EPF account
- A very good savings option which provides long-term investment.
- Ability to transfer funds in case an employee changes organisation, as all EPF accounts come under one UAN.
- Is considered as one of the best savings options in case of retirement, emergencies as well as a back-up for an employee who cannot work for some reason.
- The employee is insured as the employer must contribute towards life insurance, under the Employees’ Provident Fund and Miscellaneous Act, 1952.
Enacted in 1995, EPS offers pension on disablement as well as widow pensions. Nominees would also be able to receive pensions under this scheme. Out of the employer’s 12% contribution, 8.33% goes into the EPS account while the remaining 3.67% goes towards the EPF account. The maximum amount that can go towards the EPS account is Rs.1,250 per month. If an employee is a member of the EPF scheme, he/she automatically becomes a member of the EPS scheme. Pension can be claimed if the employee is above 50 years old and has the Scheme Certificate.
If the employee has not finished more than 9.5 of service, a claim must be raised for a pension refund. This can be done by filling form 10-C and submitting it through the employer. The contribution from the Indian government cannot exceed 1.16% of Rs.15,000. Pension claims can also be done online on the EPFO website. The minimum age for early pension is 50 years and for regular pension is 58 years. Early pension can be taken if the employee has the attained the age of 50 to 58 years and has completed 10 years of service, if the employee is unable to perform the job due to a permanent disability and/or if the employee dies after or during service. EPS contributions made by the employee does not accumulate any interest.
Calculation of EPS
Pension amount is calculated as follows:
Pension amount = (Service period x Salary which is pensionable)/70
The following points must be kept in mind to calculate pension:
- The amount of salary which is pensionable is the average income of the past 60 months.
- Only dearness allowance and basic pay are considered as salary.
- Pension must be more than Rs.1,000 as per the new rules.
- Two years of bonus is added on completion of 20 years of service.
Benefits of EPS
Some of the key benefits of EPS are:
- Upon the death of the employee, family members are eligible to the pension.
- Since an employee is automatically a part of the EPS scheme if he/she is part of the EPF scheme, all details are under one UAN account and can be accessed easily.
- Employees are eligible for pension after a minimum service of 10 years and reaching 50 years of age. No such benefits are provided by an EPF account.
EPF Vs. EPS
|Deposit Limit||Predetermined, fixed rate||Maximum of Rs.1,250|
|Age Limit for withdrawal||Not required||
|Interest Rate||8.55% for FY2017-2018||No interest rate applied|
Both the EPF and EPS come with many benefits and hence are regarded as the most popular long-term savings schemes in India. Introduced by the Indian government and designed for salaried employees, both give guaranteed returns on investments.
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