EPF vs EPS: Pension Schemes in India

Your monthly salary carries two key deductions: one for the Employees’ Provident Fund (EPF) and one for the Employees' Pension Scheme (EPS). The two are similar in the sense that they both come under the Employees' Provident Fund Organisation (EPFO) and they both work for the same bigger goal.

Yet, their mode of operation is completely different. EPF is a savings account where your pension corpus grows with interest and can be withdrawn as a lump sum. EPS, meanwhile, is a pension pool that pays a fixed monthly income after you retire.

This article dives into details of both the schemes, how contributions and payouts are calculated, who is eligible, the tax treatment on both, and how to withdraw or claim your money when the time comes.

Key Takeaways

• EPF is a savings scheme that builds a withdrawable corpus, while EPS is a pension scheme that pays a recurring monthly income after retirement.
• Employees contribute 12% of their basic pay solely to EPF, whereas EPS is funded only by employers and never by employees.
• Irrespective of your salary, the employer's EPS share is capped at and can never exceed ₹1,250 per month.
• If you complete 10 years of service, you become eligible for lifelong pension. If you fall short of a decade, you can claim a one-time withdrawal benefit (via Form 10C upon leaving employment or after 2 months of unemployment) or a scheme certificate.
• For 2025-26, EPF is earning an interest of 8.25%. EPS pays no interest as your eventual pension follows a fixed formula instead.

What is EPF?

The Employees' Provident Fund (EPF) is a government-backed retirement savings scheme run by the EPFO under the Employees' Provident Funds Act, 1952. Month after month, both you and your employer set aside a fixed share of your basic salary and dearness allowance (DA) into your EPF account.

This corpus earns interest every year and sits untouched until you retire, resign, or withdraw the amount in case of an approved emergency. EPF works more like a disciplined, employer-assisted savings account rather than an insurance or pension product.

What is EPS?

The Employees' Pension Scheme, introduced in 1995, sits inside the same EPF framework but serves a different purpose altogether: replacing your salary with a monthly pension once you stop working.

Unlike EPF, you never put your own money into EPS. The entire funding comes from a slice of your employer’s contribution. The eventual pension amount depends on two things: how many years you contributed and your average salary over the last few years before exit.

EPS also extends beyond retirement itself, offering a family pension to your spouse and children if you pass away, and a disability pension if you are permanently unable to work.

EPF vs EPS: Quick Comparison Table

Here’s a side-by-side look at how the two schemes stack up on important parameters.

Aspect	EPF	EPS
What It Is	A savings account that is funded by both employer and employee every month	A pension pool funded only by a slice of the employer’s contribution
Core Purpose	Builds a lump-sum retirement corpus that you can withdraw	Pays a fixed monthly pension after retirement or disability
Employee Contribution	12% of basic pay + DA, every month	None; employees never contribute directly to EPS
Employer Contribution	3.67% of basic pay + DA (balance after EPS is carved out)	8.33% of basic pay + DA, capped at ₹1,250/month
Interest	8.25% per annum for 2025-26, declared annually by EPFO	No interest; it is a defined pension formula, not a savings account
Minimum Service Needed	None, withdrawable on eligible exit	10 years of contributory service for a lifelong pension
Payout Type	One-time lump sum (principal + interest)	Recurring monthly pension, or a one-time withdrawal benefit via Form 10C upon leaving employment (after 2 months of unemployment or exiting service before 10 years)
Governing Rule	Employees' Provident Funds Scheme, 1952	Employees' Pension Scheme, 1995

How are Contributions Split Between EPF and EPS?

Every month, 24% of your basic salary and DA (12% from you and 12% from your employer) flows into the EPFO system. Your entire 12% goes into EPF.

Your employer's 12% is split: 8.33% goes to EPS (capped at a monthly wage of ₹15,000, so the maximum contribution ever to EPS is ₹1,250 per month) and the remaining 3.67% goes to EPF.

One important thing to note here is that if your actual basic salary and DA exceed ₹15,000 per month, the EPS share still caps out at ₹1,250, but the remaining amount of the 8.33% share simply flows into your EPF account instead.

So, on a salary of ₹20,000, your employer's EPF share isn't 3.67% (or ₹734). It is actually ₹1,150 (₹734 + ₹416). EPS absorbs only the first ₹1,250 of 8.33% of ₹20,000 (₹1,666) and EPF picks up the remaining amount (₹1,666 - ₹1,250 = ₹416).

Note: Eligible employees who were members of EPFO prior to September 1, 2014, have the option to contribute 8.33% of their actual basic salary (rather than capping it at the ₹15,000 wage ceiling) toward EPS to receive a significantly higher monthly pension post-retirement.

How Your EPS Pension Amount is Calculated

Once you are eligible, EPFO works out your monthly pension using a fixed formula:

Monthly Pension = (Pensionable Salary x Pensionable Service) ÷ 70

Pensionable service is the number of years you actively contributed to EPS. Pensionable salary is your average basic salary drawn over the 60 months immediately before you exit, capped at ₹15,000.

So, an employee with 20 years of contributory service and a pensionable salary of ₹15,000 would be entitled to (15,000 x 20) ÷ 70 = ₹4,285.71, rounded to roughly ₹4,286 a month.

EPS also guarantees a minimum monthly pension of ₹1,000 for eligible members, even if the formula throws up a lower figure.

Who is Eligible for EPF and EPS?

EPF and EPS coverage runs together for most salaried employees, but a few eligibility distinctions are worth knowing.

Condition	EPF	EPS
Who must join	Any employee in a covered establishment (20+ staff)	Automatically enrolled once EPF membership starts
Salary threshold	Mandatory up to ₹15,000 basic + DA; voluntary above it	Employer’s EPS share is capped at the ₹15,000 ceiling regardless of actual salary
New employees above 58	Not eligible to open a fresh EPS account, but EPF continues	Cannot join EPS as a first-time member after age 58