When planning for retirement, two key components that often come into play for salaried employees in India are the Employee Provident Fund (EPF) and the Employee Pension Scheme (EPS). While both schemes aim to provide financial security during retirement, they differ in several aspects. Understanding these differences is crucial for making informed decisions about your retirement savings.
What is the EPF scheme?
The Employee Provident Fund (EPF) is a retirement savings scheme mandated by the Employees' Provident Funds and Miscellaneous Provisions Act, 1952. It is a savings platform for employees working in the organised sector, managed by the Employees' Provident Fund Organisation (EPFO). Both the employee and employer contribute to this fund monthly, with the accumulated amount being paid out to the employee at retirement or during certain situations, such as unemployment, medical purpose, education, marriage, home purchase etc.
What is the EPS?
The Employee Pension Scheme (EPS) is another important scheme under the EPF and Miscellaneous Provisions Act, 1952. Unlike EPF, which serves as a lump sum retirement corpus, EPS provides a pension to employees upon retirement. The pension amount depends on the employee's salary and the number of years of service.
Difference between EPF and EPS
| Aspect |
EPF |
EPS |
| Contribution to the scheme |
12% of basic salary + DA from both employer and employee |
8.33% of employer’s contribution (No employee contribution) |
| Contribution limit |
No specific limit; based on salary percentage |
Based on a salary cap of ₹15,000 per month |
| Applicability |
All employees in organised sectors with a salary of upto ₹15,000 per month, but others can also voluntarily opt-in |
Mandatory for employees earning up to ₹15,000 per month. |
| Withdrawal from the account |
Lump sum withdrawal allowed after retirement, resignation or unemployment |
Withdrawal allowed only under specific conditions, typically as pension at retirement |
| Payable benefit |
Lump sum amount (employee + employer contribution + interest) |
Monthly pension after retirement or upon fulfilment of eligibility criteria |
| Interest |
Annual interest declared by the EPFO, compounded yearly |
No interest is applicable as it is a pension scheme |
| Tax benefit |
Exempt-Exempt-Exempt (EEE) under Section 80C |
Pension received is taxable as per your tax slab |
Also Read: Your PPF can help you with getting a loan
Conclusion
Understanding the difference between EPF and EPS is essential for managing your retirement savings effectively. While EPF helps you accumulate a substantial corpus over your working years, EPS ensures a steady income during your retirement. Both the schemes aim to provide a comprehensive retirement plan that covers both immediate needs and long-term financial security.
Beyond EPF and EPS, options like PPF (Public Provident Fund) and ELSS (Equity Linked Savings Scheme) can be excellent choices for building a robust retirement corpus. PPF is a government-backed savings scheme offering a fixed interest rate with tax-free returns, making it a low-risk option ideal for conservative investors. On the other hand, ELSS is a market-linked investment that offers the dual benefit of potentially high returns and tax savings under Section 80C, suitable for those willing to take on moderate risk for higher growth.
Axis Bank offers both PPF and ELSS investment options, giving you the flexibility to choose the right mix of safety and growth for your retirement planning. Explore these options to further secure your financial future.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
Mutual Fund investments are subject to market risk, read all scheme related documents carefully. Axis Bank Ltd is acting as an AMFI registered MF Distributor (ARN code: ARN-0019). Purchase of Mutual Funds by Axis Bank’s customer is purely voluntary and not linked to availment of any other facility from the Bank. T&C apply.
