Employee Pension Scheme (EPS) is a retirement scheme provided by the government of India for employees in the organized sector like the Atal Pension Yojana for the unorganized sector. EPS is a social security scheme that aims to provide financial stability to retired employees. It enables them to live a life of comfort and security, without having to worry about their financial needs.
Under the EPS, employees who are a part of the Employees’ Provident Fund (EPF) scheme are eligible for pension benefits. However, not everyone can enjoy these benefits. To be eligible for the EPS, an employee must have completed at least 10 years of eligible service and have contributed to the scheme for a minimum period of 10 years. So, some criteria must be fulfilled to get the pension.
The contributions to the Employee Pension Scheme are made jointly by the employer and the employee. The employer is required to contribute 8.33% of the employee’s salary to the EPS, subject to a maximum amount of Rs. 1,250 per month. The employee, on the other hand, contributes 12% of their salary to the EPF, out of which a portion goes towards the EPS.
Benefits of the Employee Pension Scheme
EPS serves as a valuable retirement planning tool for Indian employees, fostering a secure and financially independent future. To fully grasp the advantages of EPS, consider the following additional details:
- The minimum pension of Rs. 1,000 per month applies to all EPS members, irrespective of their age, salary, or years of service.
- Death benefits are payable to the spouse and dependents of the deceased member, calculated based on the member’s average monthly salary during their last 10 years of service.
- Disability benefits are paid to disabled members, calculated based on their average monthly salary during the last 10 years of service.
- Tax benefits are available to all EPS members, with contributions qualifying for a deduction under Section 80C of the Income Tax Act, and pension payments being tax-free.
- Unlike defined contribution schemes, EPS operates as a defined benefit scheme, ensuring a fixed and guaranteed pension amount, independent of the member’s contributions and investment performance.
Withdrawal Rules of Employee Pension Scheme
Withdrawal under the Employee Pension Scheme (EPS) is applicable under specific circumstances, ensuring financial support for employees during various life events. These circumstances include:
- Retirement at the age of 58, with a full pension entitlement.
- Early retirement at the age of 50, with a reduced pension.
- In the event of the employee’s death, providing death benefits for their spouse and dependents.
- On becoming disabled, granting disability benefits to the employee.
When an employee chooses to withdraw their EPS benefits before the age of 58, the pension amount they receive will be reduced. The calculation of the reduced pension considers the employee’s age at the time of withdrawal, the number of years of service, and the average monthly salary during the last 10 years of service.
In the unfortunate event of an employee’s death, their spouse and dependents may be eligible for death benefits. The calculation of these benefits takes into account the employee’s age at the time of death, the number of years of service, and the average monthly salary during the last 10 years of service.
Similarly, if an employee becomes disabled, they may be eligible for disability benefits. The calculation of these benefits considers the employee’s age at the time of disability, the number of years of service, and the average monthly salary during the last 10 years of service.
To initiate the withdrawal of EPS benefits, employees are required to submit Form 10C to the Employees’ Provident Fund Organization (EPFO). This form can be submitted either online or at any EPFO office.
Here are additional details about the withdrawal rules of EPS:
- Employees who have not completed 10 years of service can only withdraw their EPS benefits if they have been unemployed for more than two months.
- The amount of EPS withdrawal is calculated based on the average monthly salary earned by the employee during the last 10 years of service.
- The maximum withdrawal amount from the EPS is set at Rs. 1,00,000.
- Employees who choose to withdraw their EPS benefits before the age of 58 will be subject to a withdrawal penalty.
These withdrawal rules provide a framework for employees to access their EPS benefits following their circumstances and needs. It ensures that employees are supported financially during significant life events while considering their years of service and average salary during the last 10 years.
Tax Benefits of the Scheme
The Employee Pension Scheme (EPS) offers several tax benefits, which can help you to save money on your income tax bill.
- Contributions to the EPS are tax-deductible: The contributions that you make to the EPS are eligible for a deduction under Section 80C of the Income Tax Act. This means that you can reduce your taxable income by the amount of your contributions.
- Pension payments are tax-free: The pension payments that you receive under the EPS are tax-free. This means that you will not have to pay any income tax on the money that you receive from the scheme.
- Death benefits are tax-free: The death benefits that your spouse or dependents receive under the EPS are tax-free. This means that they will not have to pay any income tax on the money that they receive from the scheme.
These tax benefits can make the EPS a very attractive retirement planning option. If you are considering saving for retirement, you should factor in the tax benefits of the EPS.
Here are some additional details about the tax benefits of the EPS:
- The tax deduction for contributions to the EPS is limited to Rs. 1.5 lakh per year.
- The tax exemption for pension payments under the EPS applies only to the basic pension. Any additional benefits, such as dearness allowance or gratuity, are taxable.
- The tax exemption for death benefits under the EPS applies only to the basic death benefit. Any additional benefits, such as dependents’ pension, are taxable.
Unique Benefits of the Scheme
Similar to that of Pradhan Mantri Vaya Vandana Yojana, the Employee Pension Scheme (EPS) provides valuable death and disability benefits to eligible individuals. Let’s take a closer look at these benefits:
Death Benefits: In the unfortunate event of an employee’s demise, their spouse and dependents may qualify for death benefits. The quantum of death benefits is determined as follows:
- Spouse: 50% of the member’s pensionable salary
- Children: 25% of the member’s pensionable salary per child, with a maximum of two children
- Parents: 10% of the member’s pensionable salary per parent
Disability Benefits: In the case of an employee’s total disability, they may be eligible for disability benefits. The amount of disability benefits is calculated as follows:
- 60% of the member’s pensionable salary
The death and disability benefits provided by the EPS become payable from the date of the member’s death or disability. These benefits are directly disbursed to the spouse or dependents of the deceased or disabled member.
Here are some additional essential details concerning the death and disability benefits of the EPS:
- The death and disability benefits are payable even if the member has not completed 10 years of service.
- The death and disability benefits received under the EPS are exempt from taxation.
- If the member passes away after retirement and is already receiving a pension, the death benefits will be paid to the surviving spouse and dependents.
- If the member becomes disabled after retirement and is already receiving a pension, disability benefits will be provided to the disabled member.
- Should you have any queries or concerns regarding the death and disability benefits offered by the EPS, it is advisable to seek guidance from an EPFO officer.
Understanding the death and disability benefits available through the EPS is crucial to ensure financial security for both employees and their loved ones. By familiarizing ourselves with these provisions, we can make informed decisions and better protect our futures.
Conclusion
Employee Pension Scheme is one of the government-backed investment schemes, is a crucial part of retirement planning, and can not be skipped. The assured interest of 8.33 per annum and a minimum contribution of 1250 per month, both from you and your employer lays the foundation for a financially secured future.
The most unique feature scheme provides is valuable death and disability benefits to eligible individuals, ensuring financial support during challenging times. Death benefits are calculated based on the member’s pensionable salary and disbursed to the spouse, children, and parents, while disability benefits are calculated as a percentage of the member’s pensionable salary.
Understanding the EPS and its benefits is crucial for individuals planning their retirement and seeking financial security. By familiarizing themselves with the scheme’s provisions, employees can make informed decisions and protect their future well-being.
