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Employee Pension Scheme (EPS) is a mandatory savings scheme for employees whose basic salary plus Dearness Allowance (DA) is up to INR 15,000. The maximum EPS contribution by the employer is 8.3% of basic salary + DA. EPS offers a pension amount once you are 58 years old. On the other hand, the National Pension Scheme (NPS) is a voluntary scheme that helps you save for retirement. The scheme invests across equity and debt instruments and hence can generate higher returns than EPS. This article highlights the key differences between EPS Vs NPS.

EPS vs NPS – What’s is the Difference?

Following are the key differences between EPS Vs NPS:

Basis of DifferenceEPSNPS
Nature of the SchemeA mandatory scheme where the PF wages do not exceed the wage ceiling amount.Voluntary scheme.
Employer Contribution8.33% of the basic salary plus dearness allowance of the employeeNot mandatory.
Employee ContributionNilNot mandatory.
ReturnsStable returnsMarket linked, historical average around 9% to 12%.
EligibilityEmployees with salary + dearness allowance up to INR 15,000All Indian citizens between 18 and 65 years.
Maximum Contribution8.33% of 15,000 = INR 1,250No limit. The minimum investment to keep the account active is INR 500.
Tax BenefitsThe pension amount is tax-free.  Investments in the National Pension Scheme up to INR 1,50,000 are eligible for a tax exemption under Section 80C of the Income Tax Act, 1961. Additionally, under section 80 CCD (1B) of the Income Tax Act, 1961, you can claim a tax deduction for an additional sum of INR 50,000.
Withdrawal of FundsYou will receive a pension once you complete 58 years. Both pension amount and lump-sum amount are taxable.You can withdraw funds once you complete 60 years. Furthermore, you can choose to extend it till 70 years of age.
Premature WithdrawalAfter completing 50 years, you may be eligible for an early retirement pension.
If you reach the age of 58 or your number of service years is less than 10 years, you can take a lump-sum payment. The sum can be withdrawn depending on the number of years of service.
You cannot withdraw funds until you reach the age of 60.
Partial withdrawals are permitted if you invest at least 80% of the NPS assets in an annuity plan.
After the age of 60, withdrawals demand a 40% investment in an annuity.

EPS vs NPS – Which is Better for Retirement?

The Employee Pension Scheme aims to offer fixed pensions to individuals from 58 years of age until death. EPS pays individuals on a monthly basis, and thus, the returns are fixed. Furthermore, EPS offers additional benefits to family members, insurance, widow pension, etc.

On the other hand, the National Pension Scheme is a defined contribution retirement scheme. NPS investments are market-linked, and thus the investment is a risky one. The fund invests across debt and equity instruments. Therefore, the returns are not guaranteed.

Furthermore, EPS returns are tax-free. Whereas 60% of the NPS corpus is tax-free on retirement, the remaining 40%, which is invested in the annuity, is taxable.


EPS and NPS are schemes that suit different types of investors. EPS is a mandatory scheme where the employees receive a pension once they attain the age of 58 years old. On the other hand, NPS is a voluntary scheme with dual benefits of investing and pension. Therefore, the choice of whether or not to invest in an NPS scheme largely depends on your investment objective and goal. If you wish to invest in a long term scheme that gives you exposure to equity and debt, you can consider NPS investments. If not, EPS will help you earn stable returns during your retirement.

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