Most employees are members of the Employees’ Provident Fund (EPF) and have EPF accounts. Of these, eligible employees have Employees Pension Scheme (EPS) accounts as well. For such employees, the EPF corpus has a pension component as well, i.e., Employees’ Pension Scheme (EPS). Here is a look at how and when you can withdraw from your EPS account if you have one.
How is Employees’ Pension Scheme account funded?
As per current laws, an employee contributes 12 per cent of his/her monthly salary (basic plus dearness allowance) to his/her EPF account and the employer matches this contribution. Out of the employer’s contribution, 8.33 per cent is contributed to EPS account subject to a maximum of Rs 1,250 per month. The remaining 3.67 per cent along with the employee’s own contribution goes into the EPF account.
The 8.33 per cent contribution by employer to the EPS is made on a monthly salary of up to Rs 15,000 which calculates to a maximum of Rs 1250 (8.33 per cent of Rs 15,000).
For example, if a person’s monthly salary is Rs 25,000, then the employer’s contribution would be limited to 8.33% of Rs 15,000 only. If the person’s monthly salary is Rs 10,000, then the employer’s contribution to EPS would be 8.33% of Rs 10,000.
Who can withdraw from EPS account?
According to experts, the lump sum withdrawal of money from one’s EPS account is allowed in two situations.
Puneet Gupta, Director, EY India says, “As per EPS rules, if any member has completed less than 10 years of service on the date of exit (date on which the member leaves the job in the establishment) or has attained the age of 58 years (whichever is earlier), then the individual is eligible for lump-sum withdrawal from the EPS account. If such an individual is less than 58 years of age on the date of exit the employee may opt for a Scheme Certificate under the EPS instead of lump sum withdrawal. Such Scheme Certificate may be taken when the individual plans to join back another employment later. If the number of years of service exceeds 10 years, then a Scheme Certificate will be issued to the individual.”
Employees’ Provident Fund Organisation (EPFO) calculates the number of years of service from the date of joining the EPF scheme. However, it is not necessary that the number of years of service be continuous.
Suppose you joined the EPF scheme in 2010 by working with A Ltd and worked there for three years. Then you switched to B Ltd where the employer did not offer the EPF benefit, since they were not covered under the EPF Act. You worked with B Ltd for 4 years. In 2017, you switched to C Ltd where you were under the EPF scheme. Till the current year, i.e., 2020, the number of years of service for EPS withdrawal purposes will be calculated as three years with A Ltd and three years with C Ltd, which is six years. Therefore, in such a scenario you can make a lump sum withdrawal.
How much can one withdraw from EPS account?
The lesser the number of years of service the lower will be the amount give to you in case of lump sum withdrawal before completion of 10 years. Saraswathi Kasturirangan, Partner, Deloitte India says, “The lump sum withdrawal from the EPS scheme is allowed only if the service period is less than 10 years. The amount that will be returned to you will be based on Table-D mentioned in EPS Scheme 1995.”
For instance, if the service is for 7 years, then the amount of money that will be returned to you will be based on the last drawn wages multiplied by a factor indicated in table D.
Return of contribution on exit of employment
|Years of Service||Proportion of wages at exit|
Note: The above table is based on a flat addition in benefit.
“Prior to September 2014 notification, the maximum amount that could be contributed to the EPS scheme was Rs 541 per month. As per the current laws, it is Rs 1,250 per month,” adds Kasturirangan.
Certificate of pension
As mentioned above, if the number of years of service is more than 10 years, then in such a scenario the individual will get a certificate of pension. The certificate of pension mentions the pensionable service, pensionable salary and the amount of pension due on the exit from the employment. In case the employee is subsequently employed in an establishment coverable under the scheme, his/her earlier service as per the scheme certificate shall be reckoned for pension along with new period of pensionable service.
“If an individual holds Scheme Certificate with eligible service of 10 years or more, under the EPS, he / she will be eligible for a monthly pension from the age of 58 years of age. However, an individual can apply for an early pension at the age of 50 years as well. In such a case the monthly pension received at the age of 50 years of age will be lower than the pension that an individual will be eligible for at the age of 58 years of age,” explains Gupta.
Is the withdrawal from EPS taxable?
Kasturirangan says, “Any lump sum withdrawal from the EPS account will be taxable. However, there is no clarity in the income tax laws, under which head it is taxable.”
What if you have withdrawn money from EPF account due to job loss?
Under the EPF scheme, a member has the option to withdraw the full corpus and close the account in the event of job loss.
Kasturirangan says, “The lump sum complete withdrawal from EPF and EPS account (provided number of years of service is less than 10 years) can be done at the time of closing of account in the event of job-loss (and remaining unemployed for over 2 months), or at the time of retirement, death or due to permanent and total disability of member.”
Gupta says, “While withdrawing money from the EPF account, it is important to select the option of pension withdrawal benefits in the composite claim form to be able to receive money from EPS account as well. However, in case you have missed option of pension withdrawal benefits earlier while submitting the claim form, then you will be required to file a claim again using composite claim form for withdrawing of money from the EPS account.”