Simple Steps To Know For Employees Provident Fund EPF and Employees Pension Fund EPS Withdrawal Procedure

Things You Need to Know About EPF and EPS

The Employees’ Provident Fund (EPF) and the Employees’ Pension Scheme (EPS) have provided immense benefits to a large number of salaried employees in India. However, before delving deeper into the world of EPF and EPS, it would be better to understand the key features of these schemes.

What Is EPF?

Run by the Employees’ Provident Fund Organisation (EPFO) in India, EPF is a retirement benefits scheme which functions as a saving platform for salaried employees. If you have more than 20 employees in your company, then you are legally required to register with EPFO. 

Benefits of EPF

Retirement Savings – The primary purpose of the EPF scheme is to help employees build a corpus for their retirement. Both the employee and employer make contributions towards the EPF, which accumulate over time with the power of compounding. Upon retirement, employees can withdraw the accumulated balance or choose to receive a monthly pension through the Employee Pension Scheme (EPS).

Social Security – EPF provides social security to employees by creating a financial safety net. It ensures that employees have savings to support themselves and their families during their post-employment years.

Tax-Exempt Growth – The EPF contributions and the interest earned on them are tax-exempt. The interest rate is determined by the government and is generally higher than other fixed-income investment options.

Loan Facilities – Employees can avail themselves of loan facilities against their EPF balance for various purposes such as home purchase, house construction or medical emergencies.

Insurance Coverage – EPF members are eligible for life insurance coverage under the Employee Deposit Linked Insurance (EDLI) scheme. The insurance coverage is provided by the EPFO and is a multiple of the average balance in the member’s EPF account subject to a maximum limit.

So, how does it work?

The time from when you start working, 12% of your salary is deducted and added to your EPF account. Another 12% is contributed by your employer, of which only 3.67% goes to your EPF account. The remaining 8.33% is diverted towards the Employees’ Pension scheme or EPS.

A yearly interest of 8-12% is provided on EPF, which is also tax-deductible under section 80(C) of the Income Tax Act.

What Is EPS?

If you are a member of EPF, you automatically become a member of EPS. EPS offers a pension to salaried employees after their retirement. It is financed by diverting the employer’s contribution of 8.33% towards EPS which earns zero interest.

It is important to note that the EPS contribution is calculated on the actual wages of the employee and not on the statutory wage ceiling. The statutory wage ceiling is the maximum limit on wages, beyond which certain contributions may not be required. The statutory wage ceiling for EPF contribution is Rs. 15,000 per month. However, the EPS contribution is calculated on the actual wages and not limited by the statutory wage ceiling.

Employees who are members of the EPF scheme and have completed at least 10 years of eligible service are eligible for the pension under EPS. However, if an employee has not completed 10 years of service, they may still be eligible for a withdrawal benefit.

How Much Pension Will You Get from EPS?

Your pension amount is dependent upon your salary. 

To be eligible for EPS, employees should draw a minimum salary of Rs. 6500 (8.33% of which is Rs. 541 per month).

Since 2014, the bar has been raised to Rs. 15,000 (8.33% of which is Rs. 1250 per month). If the salary is less than Rs. 6500, the central government itself contributes 1.16% of the employee’s monthly wage to the EPS. 

Can You Withdraw the Pension Contribution from EPF?

Yes, you can.

However, there are stringent eligibility conditions which you must be aware of before withdrawing any amount from EPF and EPS in India. These are: 

Withdrawing EPF + EPS (below ten years of service)– In this case, both EPF and EPS amount will be paid in total. 

2. Withdrawing EPF + EPS (above ten years of service)– Only the EPF amount will be paid. The EPS cannot be withdrawn. Instead, a scheme certificate is issued, after filling out Form 10(C). The pension will be paid after the person has completed 58 years of age. 
3. Withdrawing only EPF with a reduced pension– This entails full payment of EPF amount but with a reduced pension. The reduced ten too can only be paid if you have completed 10 years of service and are between 50-58 years of age. For this, form 10(D) will have to be submitted. 
4. Withdrawing only EPF with a full pension– The full EPF and EPS amount will be available only after you turn 58. For this too, form 10(D) will have to be filled. 

Why Is Pension Contribution Not Transferred?

When you change jobs, only the EPF component is transferred. The EPS will not be transferred because pension benefits are based on service. They aren’t dependent upon the amount being contributed. Instead of transferring, the EPS amount will be shifted to service history. It will be paid only during superannuation, early retirement or in the case of death. 

How Is EPS Pension Calculated?

There is a fixed formula to calculate EPS. This is:

Pension (monthly)= (Pensionable salary x Pensionable service) / 70

For example, if your monthly salary is Rs. 6500 and you have worked for 35 years; your monthly pension will be- (6500 x 35 years)/70, which amounts up to Rs. 3250. This will be the minimum pension you will receive per month. 

Withdrawal Procedure for EPF and EPS in India

The withdrawal process for EPF and EPS in India can be initiated either online or by filling out certain forms manually. 

As per the existing rules, full withdrawals from EPF  and EPS can only be made when you retire. However, if you quit your job before your retirement age; which in most cases is 58, you will have to follow certain conditions. These are:

-You should not have had a job for at least the last two months. You will also be asked to file a declaration regarding the same. 

-You will have to fill out Form 19 (for EPF) and Form 10(C) (for EPS) and get it attested either by your former employer, bank manager or any other gazetted officer. Recently, the EPFO has even introduced a composite form for withdrawing money from both EPF and EPS. 

– Along with this form, you will also have to submit a letter which states that you have been relieved of your services by the company. 

-A cancelled cheque addressed to the EPFO of your jurisdiction will also need to be submitted. 

-If you are joining a new job, you will need to fill out Form 11 also. This form will furnish the details about your past EPF and EPS record to your new employer.  

Once this is done, the withdrawal process begins. You can make withdrawals online by submitting your Aadhar details. This will generate a UAN number, which can be used to fill out the composite form online. 

The primary purpose of both, the EPF and EPS are to ensure that an employee has an adequate amount of saved monetary corpus to rely on after retirement. In other words, EPF and EPS in India provide a net of financial safety and long-term security so that the present salaried employees can become productive retirees in the future.