Answer By law4u team
When employees retire, they typically have access to two significant retirement benefits under India’s Employees’ Provident Fund (EPF) and Employees' Pension Scheme (EPS)—the EPF corpus and the pension. While both these benefits are designed to secure an individual's financial future after retirement, many employees wonder whether they can claim both pension and EPF together. The answer depends on the specific conditions outlined by the EPF and EPS schemes, and understanding the rules surrounding both is crucial for proper retirement planning.
Can You Claim Pension and EPF Together?
EPF (Employees’ Provident Fund):
EPF is a retirement savings scheme under which both the employee and employer contribute a certain percentage of the employee's salary each month. The total amount accumulated in the EPF account can be withdrawn at the time of retirement or earlier (depending on the employee’s choice and eligibility).
The EPF corpus consists of employee contributions, employer contributions, and the interest earned on them.
EPF Withdrawal:
Upon retirement, the employee is eligible to withdraw the EPF balance. This lump sum amount can be withdrawn either partially or fully, depending on whether the employee opts to continue working or claims the entire amount.
EPS (Employees’ Pension Scheme):
EPS is a pension scheme for employees working in the organized sector. Under the EPF scheme, part of the employer's contribution (8.33%) is allocated to the EPS. However, employees need to have worked for at least 10 years under the scheme to be eligible for pension benefits.
The pension provided under EPS is generally a monthly payment after the employee reaches the retirement age (typically 58 years).
EPS Withdrawal:
If the employee has worked for less than 10 years, they can withdraw the employer’s share of EPS contributions as a lump sum instead of receiving a pension. However, if the employee has completed 10 years of service, they will receive a monthly pension upon reaching the age of 58, based on their average salary and the number of years of service.
Claiming Both Together:
Eligibility for EPF and EPS:
Yes, an individual can claim both EPF and pension together. However, there are certain conditions:
- EPF can be withdrawn as a lump sum by the employee after retirement.
- The EPS pension is paid monthly and starts after the employee turns 58 years old, provided they meet the eligibility criteria (i.e., having worked for at least 10 years).
- The two are separate benefits under the same EPF scheme but serve different purposes. EPF is a one-time withdrawal benefit, while EPS is a long-term pension for retirees.
Important Point:
Even if an individual claims EPF (full withdrawal), they may still be eligible to receive the EPS pension if they meet the criteria (like 10 years of service).
Tax Implications:
EPF:
The amount withdrawn from EPF is tax-free if the individual has completed at least 5 years of continuous service. If withdrawn earlier, the amount may be subject to tax.
EPS:
The pension received from EPS is taxable as part of the individual’s income from salaries.
Example:
Suppose Mr. Ramesh has worked for 30 years with a company that contributes to his EPF and EPS. Upon retirement, he chooses to withdraw the full balance of his EPF corpus, which includes his and his employer's contributions along with the accrued interest. However, since he has completed 10 years of service, he is eligible for pension under EPS. Therefore, Mr. Ramesh will receive a monthly pension starting at the age of 58, in addition to the lump sum amount withdrawn from his EPF account.
Key Considerations:
Pension Eligibility:
You can claim pension only if you have worked for at least 10 years under the EPF scheme. If you have worked less than 10 years, the employer's share of the contribution will be returned as a lump sum.
Tax on Withdrawal:
If you withdraw the EPF before completing 5 years of service, the amount may be subject to tax. The EPS pension, however, will be taxed as part of your income after retirement.
Retirement Planning:
Combining the lump sum EPF withdrawal with the monthly pension can provide a balanced retirement income. The EPF corpus can be used to cover immediate expenses, while the EPS pension offers a steady income for long-term financial security.
Conclusion:
Yes, you can claim both pension and EPF together after retirement. The EPF provides a lump sum amount that can be withdrawn at retirement, while the EPS offers a regular monthly pension. To be eligible for the pension, the individual must have worked for at least 10 years in the organization and must be of retirement age (58 years). Both these benefits work together to secure an individual’s financial future after retirement.
