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If you are a salaried employee in India, you already know about the portion of your salary that you do not get in hand. You typically contribute this portion of your salary towards your Employee Provident Fund or EPF account.

Here’s a step by step guide for you to understand all about EPF

What is EPF?

Employee Provident Fund (EPF) is a fund wherein the employee and the employer have to contribute an equal pre-decided amount of money which can later be leveraged by the employee. It is managed by the Employee Provident Fund Organisation of India (EPFO).

EPF applicability

Let’s understand the conditions around which EPF is applicable –

EPF applicability for employers

  1. Any company that has 20 or more employees in total is required by law to deduct EPF.
  2. Subject to certain conditions even organisations with less than 20 employees are applicable.

EPF applicability for employees

  1. Any salaried employee with a monthly income of less than 15,000 INR needs to compulsorily be a member of the EPF.
  2. An employee with a monthly income higher than INR 15,000 (the current prescribed limit) is eligible to become a member of the EPF if he/she gets approval from the Assistant PF Commissioner and employer.
  3. An employee can also choose to opt out of EPF if his/her salary is higher than INR 15,000 and if they have never made any contribution to EPF. This can be done by filling Form 11, which is a self-declaration form provided by the EPFO.

EPF Contribution

The employee and the employer both have to contribute equally towards the employee provident fund. But what is the amount and how is it calculated? Let us know!


  • EPF is calculated on the salary, where salary = Basic + DA (Dearness Allowance)
  • In private organisations, salary = Basic.
  • The EPF contribution is either 1800 INR per month or 12% of the salary.
  • That means, 12% of your salary goes into your PF account.
  • Your employer needs to contribute 12% too. This 12%, however, is divided into two accounts-
    1. Employee Provident Fund – 3.67%
    2. Employee Pension Scheme – 8.33%
  • Apart from this, the employer needs to pay 1% extra charges –
    1. EDLI, Employee Deposit Linked Insurance (insurance of your EPF and EPS) – 0.5%
    2. EPF administration charges – 0.5%

There are three scenarios on which EPF contribution depends.

Scenario 1 – Employee’s salary is less than 15000INR

Let’s assume the salary is S1, so –

  1. The employee will contribute 12 % of S1.
  2. Whereas, the employer will contribute –
    – 3.67% of S1 to EPF
    – 8.33% of S1 to EPS
    – 0.5% of S1 to EDLI
    – 0.5% of S1 to EPF Admin charges

Scenario 2 – Employee’s salary is more than 15000INR
In case the employer opts for Minimum EPF, then the calculation is not done on the employee’s current salary, rather on the minimum salary – that is – 15000INR.

  1. The employee will contribute 12 % of 15000 = (1800 INR).
  2. Whereas, the employer will contribute –
    – 3.67% of 15000 to EPF
    – 8.33% of 15000 to EPS
    – 0.5% of 15000 to EDLI
    – 0.5% of 15000 to EPF Admin charges

Scenario 3 – Employee’s salary is more than 15000 INR
If the employer opts for Full EPF, and let’s assume the current salary is 30000 INR

  1. The employee will contribute 12% of 30000.
  2. Whereas, the employer has two choices –
    A. The employer can contribute his share total of 12% on the minimum salary of 15000INR.
    B. The employer can contribute his share total of 12% on the employee’s current salary (here, 30,000INR). In this case, the contribution to the EPS will remain 8.33% of 15,000 and the balance above that goes into the EPF.

Now that we know who contributes what into your PF account, let us know about the major benefits you receive –

  1. High Interest – You get an interest rate of 8-9% on your EPF balance. Currently, the interest rate in India is 8.65%. This high rate of interest facilitates your retirement planning.
  2. Exemption from Tax – Your EPF falls under the EEE (Exempt Exempt Exempt) category. That is, the money you invest in EPF, the interest you earn, and the money you withdraw – are all exempted from income tax.
    Note – If you withdraw money in case of emergencies (we’ll talk about it) before a specified period of 5 years then, in that case, you won’t be exempted from tax.
  3. Low Risk – EPF is an extremely low-risk investment. So, it gives you a safe option to invest your money with the added advantage of government backing.
  4. Life Insurance– EPF also acts as life insurance. In case of death of the employee, the corpus goes to the family of the deceased.
  5. Hassle-free– Owing to the UAN (a 12-digit unique number that is given to all PF members), you need to open an EPF account only once and then it can be transferred to your subsequent employers. Accessing an EPF account is absolutely hassle-free.

So many benefits, but what if you want to enjoy your EPF money right now? Well, let’s get into that –

First things first, your EPF balance is meant to be utilized at the time of your retirement and should not be withdrawn casually.

To serve this purpose, there are certain rules attached to withdrawal-

  1. You can withdraw 100% money in case you’ve chosen self-employment or have remained unemployed for more than 2 months. The latter needs to be certified by a gazetted officer.
  2. You can withdraw 75% of your EPF after one month of unemployment.
  3. You can withdraw 100% money from the EPF and EPS account at the time of retirement (58 years of age).
  4. 90% can be withdrawn at the age of 57 years.
  5. Other than that the amount can be withdrawn only in the case of emergencies such as –
    Medical emergency
    House loan repayment
    Renovation of house
    Purchase of land or house
    Marriage or education (Marriage of self/siblings/children)
    *All of the above emergency withdrawals are accessible after 5 years (or more) of service wherein you can withdraw up to a certain percentage of your EPF balance.

Concluding notes – Although EPF deprives you of the ‘high’ in-hand salary, its benefits outpower the ‘so-called con’. It is a beneficial low-risk investment that should only be accessed in case of dire emergencies.

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