EMPLOYEE PROVIDENT FUND AND EMPLOYEE FAMILY PENSION
SCHEME UNDER EPF ACT, 1952.
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 both Central
and State Government Representatives, employers and employees.
What is the EPF Scheme?
The Employees' Provident Fund (EPF) Scheme is a fixed-income retirement benefits
scheme available to employees in the corporate sector. The scheme provides financial
security to employees during their retirement years by building a retirement corpus
through regular investments made by both the employee and the employer.
One of the notable features of the scheme is that it permits employees to withdraw
fund from PF Account after completing five years of service for specific financial
needs, such as purchasing a house, repaying a home loan or pursuing higher
education. Furthermore, employees can access the retirement corpus after turning 58
years old or after remaining unemployed for 60 days or more.
The EPF Scheme implies that the investments made, interest earned and benefits
received are all exempted from tax. The scheme earns regular interest at a fixed rate
determined by the Government, which is reviewed periodically. The current interest
rate is 8.25%.
This savings scheme applies to the workforce of organisations that come under the
Employees’ Provident Fund Organisation (EPFO). It is mandatory for such
organisations where the number of employees exceeds 20 and compulsory for salaried
employees earning up to Rs.15000 salary (basic + dearness allowance). Employees
with more than Rs.15,000 salary can contribute voluntarily. The amount of PF is
calculated as follow: -
EPF
Employee Employer
EPF: 12% of Salary* EPF: 3.67% of Salary* EPS: 8.33% of Salary*
*Here Salary refers to Basic + Dearness Allowance
Benefits of EPF
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1. Tax-saving benefits
2. Capital appreciation
3. Retirement corpus
4. Financial emergency
5. Unemployment
6. Death benefits
7. Easy access
1. Tax-saving benefits
The EPF scheme offers tax-saving benefits under Section 80C of the Income Tax
Act, 1961. The interest earned on the corpus is also tax-free. Additionally, the
corpus amount remains tax-free if withdrawn after the completion of 5 years.
2. Capital appreciation
The EPF scheme offers capital appreciation because the interest rate of this
scheme is set by the Government of India and the contributions to the fund are
made on a monthly basis.
3. Retirement corpus
The EPF scheme helps in building a retirement corpus which give sense of
financial security and independence to the retired employee.
4. Financial emergency
The accumulated fund in EPF account can be utilized during unforeseen
circumstances like financial emergencies by doing partial withdrawal for a
specific purpose.
5. Unemployment
If an employee loses their job, then they can withdraw 75% of the accumulated
fund after one month of unemployment and remaining 25% of the fund can be
withdrawn after two months of unemployment.
6. Death benefits
If the employee passes away, the nominee is entitled to receive the entire EPF
corpus amount, which can provide financial assistance to the family during
challenging circumstances.
7. Easy access
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The Universal Account Number (UAN) offers easy access to employees to their
PF accounts through the EPF member portal. Employees can easily transfer their
PF account whenever they change jobs.
What is the EPS?
The Employee Pension Scheme (EPS) is a scheme offered by the Employee Provident
Fund Organization (EPFO) that provides pensions to eligible employees. The scheme
is available to employees earning salaries up to Rs.15,000/- and is designed to offer
financial security during their retirement years.
Under the EPS, the employer contributes 8.33% of the employee's salary, up to a
maximum of Rs.1250, to the employee's EPS account. The account accumulates over
the employee's service period and pension payments are made from the accumulated
balance when the employee retires.
One of the unique features of the EPS is that only the employer contributes to the
scheme and no interest income accumulates on the balance. A person is eligible to
withdraw a pension amount in following two situations:
If the EPS member leaves the job before 10 years of completion of service.
If the member has attained 58 years of age.
The pension is paid throughout the employee's lifetime and in case of employee’s
death, the pension payments continue to be made to the nominee. The amount of
pension paid is calculated as follow: -
Monthly pension = (Average last 12 Month’s Salary x No. of years worked)/70
Benefits of EPS
1. Pension upon Reaching Retirement Age
2. Pension on Early Departure from Service
3. Pension for Total Disablement during Employment
4. Pension for the Family in case of Member’s Demise
1. Pension upon Reaching Retirement Age
A person who wants to withdraw pension amount must fill Form10D which
should be supported with EPS Scheme Certificate. Pension amount is withdrawn
in following two situations:
If the EPS member leaves the job before 10 years of completion of service.
If the member has attained 58 years of age.
2. Pension on Early Departure from Service
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In case a member cannot complete ten years of service before attaining the age of
58 years, they can withdraw the entire sum when they reach 58 years of age by
filling out Form 10C. It is essential to note that the member will not receive
monthly pension benefits after retirement.
3. Pension for Total Disablement during Employment
A member of EPFO who becomes disabled permanently is given a monthly
pension, regardless of whether they have completed the pensionable service
period. The employer must deposit funds in their EPS account for a minimum
period of one month to be eligible for the pension. The member becomes eligible
for monthly pension benefits from the date of permanent disablement which is
payable for their lifetime subject to the medical examination to determine their
inability to work.
4. Pension for the Family in case of Member’s Demise
In case of a member's death while in service, their family becomes eligible for
pension benefits if the employer has deposited funds in their EPS account for at
least one month.
In case of member’s death, if the member has completed ten years of service and
passes away before turning 58 years old, their family becomes eligible for pension
benefits.
In case of death after the commencement of the monthly pension, the family can
continue receiving the pension benefits.
EPF v/s. EPS
POINTS EPF EPS
An employee's contribution to EPF
While the employee does not
is 12% of their salary plus dearness
Contribution to the contribute, the employer's
allowance, while the employer
scheme contribution to EPF is 8.33% of
contributes 3.67% of the salary
the salary plus dearness
plus dearness allowance.
allowance.
There exists no fixed ceiling, and
the limit is denoted as a percentage The monthly contribution is
Contribution limit
of the salary plus dearness capped at Rs. 1250.
allowance.
EPS is only available to those
employees whose salary plus
Applicability EPF is accessible to all employees.
dearness allowance falls under
Rs. 15,000.
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POINTS EPF EPS
Employees have the option to
Early lump sum withdrawal is
withdraw from the EPF scheme at
permissible either if the
any time. If the withdrawal takes
member has completed less
place before completing 5 years of
than 10 years of service or if
Withdrawal from the service, the withdrawn amount is
they have reached 58 years of
account subject to taxation. Nonetheless, if
age, whichever occurs earlier.
the employee remains jobless for
In order to receive early
an uninterrupted period of 60 days,
pensions, the employee must
the entire EPF balance can be
have attained 50 years of age.
withdrawn.
A regular pension becomes
The lump-sum benefit becomes
payable when the employee
payable after retirement upon
attains the age of 58. In the
The benefit payable reaching the age of 58 years or if
event of the employee's demise,
the employee remains jobless for
the pension will continue to be
an uninterrupted period of 60 days.
disbursed to the nominee.
The balance in the EPF Account
earns interest at a fixed rate, which
is reviewed and determined by the
Interest The EPS account does not
Government every quarter. The
accrue any interest.
current annual interest rate stands
at 8.25%.
As employees do not make any
contributions to the EPS, they
are not eligible for any tax
The investment amount, returns
benefits on their investments.
generated, and the redeemed
Tax benefit Any lump-sum withdrawal
amount are fully exempt from
from the scheme is taxable, and
taxes.
the pension received under the
scheme is also subject to
taxation.
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