Bigger take-home pay and Investment opportunity. Opting out of provident fund will result in more take-home pay, and hence more disposable income and investment opportunities that can potentially lead to greater returns. Here’s the process to opt out, and the pros and cons of exiting PF.

Employee Provident Fund or EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 that offers retirement as well as other benefits to the salaried class employees of the country.

How does it work?

This scheme is meant for building the retirement corpus for the employees and serves as a good investment option too. The employees can contribute 12% (up to 88%) of their PF wages towards Voluntary PF and the employer matches it with a contribution which is not more than 12%.

At the time of retirement, the employee is entitled to receive a pension and a lump sum amount which includes contributions over the years and the interest accrued thereon.

Provident fund applicability

Any organisation that has 20 or more employees is liable to maintain a provident fund account for its employees. There is no limit to the employees’ contribution to PF, he can contribute up to 100% of his Basic + DA (PF Wages) towards PF, but it must be a minimum of 12 per cent of the same.

However, if your employee draws a salary more than Rs.15,000 per month, then he/she can also choose to not contribute to the Provident Fund. This is possible only if he meets certain criteria.

For example, if a person moves overseas pursuing new employment there, then he is not obliged to contribute to EPF in India, and he can choose to opt out of PF. However, there are two other scenarios where he may need to contribute. If the employee is deputed overseas to a country with which India has a bilateral Social Security Agreement, he can obtain a Certificate of Coverage (CoC) from EPF authorities and avail exemption from contribution towards host country Social Security Scheme.

There are 18 countries with which India has entered into an SSA, for all remaining countries, as long as the person receives a salary in India, he is obligated to contribute to both Indian EPF as well as to the host country’s Social Security Scheme.

When can an employee opt out of the provident fund?

An employee can opt out of the provident fund if the following criteria are met:

  1. If he/she is a first-time employee i.e., at the time of joining the first job
  2. The employee has his or her Basic + DA (PF Wages) more than Rs.15000/- per month
  3. At the time of changing a job, only when he/she does not have an existing PF account number

Provident fund opt out procedure

If an employee wants to opt out of PF, he can fill out Form 11 at the time of joining his first job. He will also have to present a letter addressing the employer stating that he wishes to opt out of the Provident Fund Scheme. However, the option to opt out will cease to exist in the event of making even a single contribution to PF.

The benefit of opting out of provident fund for an employee

Bigger take-home pay and Investment opportunity. Opting out of provident fund will result in more take-home pay, and hence more disposable income and investment opportunities that can potentially lead to greater returns.

While opting out of PF contributions will temporarily give you more disposable income, experts do not recommend this based on what an employee will lose by not opting for PF:

  1. Missing out on employer share of contribution
  2. Missing out the interest on accumulated PF, which is 8.55% (2018- 2019) on the provident fund amount, which is significantly more than the interest rate of bank deposits.
  3. The contributions to PF are eligible for tax deductions under section Section 80C.
  4. The employee will miss out on the retirement pension under the Employees’ Pension Scheme (EPS).
  5. The employee will also miss out on the Insurance benefit (up to INR 6,00,000) that is covered under the EDLI Scheme —  in case of accidental death during service before retirement provided by EPFO. This benefit can also be availed by the employee’s nominee.
  6. The employee will not receive a lump sum amount on retirement.
  7. The employee will not have the option to take an emergency loan on the PF amount.
  8. Will not have the option of premature withdrawal of PF in case of unemployment or loss of income during medical emergencies.

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Comments

  1. comment-author
    Sumit Kumar

    Hi sir Can u please suggest me that if I don’t want to contribute in pension fund of PF while making contribution in provident fund , my employer is saying that some percentage of my employer’s fund to be transferred to pension fund , if I don’t want to be transferred into such fund then what are the step to be taken ,

  2. comment-author
    Rishabh Ranjan

    Hi Sumit,

    According to Employees’ Provident Funds and Miscellaneous Provisions Act, an employer must direct 8.3% of the employer contribution towards the Employee Provident Fund and the remaining 3.7% towards your pension fund.

  3. comment-author
    Samarth

    Sir can you please help me know i have completed 5 years of EPF dormant account since 2015 all my employers did not pay EFP . can you please suggest how do i remove this . can you suggest any better way where i can contribute both share ?

  4. comment-author
    Rishabh Ranjan

    Hi Samarth,

    Dormant Account means where the contribution stopped to employees PF account due to leaft service and employee is not withdrawn or transferred the accumuations from it. Such accounts still yield interest and emplyees can either withdraw the PF accumulations or can transer it to employees UAN by submitting either online transfer form or trasfer form. know more about how to withdraw pf.

  5. comment-author
    BIJAY

    HI , THIS IS BIJAY KUMAR BARIK, MY PREVIOUS ORGANISATION F.Y 2013-2016 THEY ONLY REMIT EMPLOYEE CONT., EMPLOYER CONT. IS STILL PENDING .

    WHAT SHALL I DO TO CLAIM MY FULL PF MONEY. PLEASE SUGGEST.

    1. comment-author
      Rishabh Ranjan

      Hi Bijay,

      You need to contact the employer to know the status of employer PF contributions. Post the remittance made by them, you can claim the complete PF dues. Alternatively, you can raise a Grievance in PF portal where EPFO will take necessary action against the employer in order to collect the employer’s contribution dues.

  6. comment-author
    Sura

    Hi Rishabh,

    I have a total of 6+ years of experience of which I have contributed to 5+ years to PF but not continuously. There is a break of 8 months in b/w where I worked for a startup, which did not contribute to EPF. However, I have all the other proofs (payslips, form-16) of continuous active employment for 6+ years. Can I withdraw my PF taxfree?

    1. comment-author
      Rishabh Ranjan

      Hi Sura,

      On the basis of the D O J and D O L the service for which employees want to withdraw PF, TDS will not be deducted by EPFO if the contribution is 5 years and above.

  7. comment-author
    Swapnil

    Hi, I m a Contractor and I hired labour only when I get some work contract from the PWD Department. I pay to employee only in the month contract is alloted to me and not on reqular basis.. Further every time there are different different labour’s.
    Please guide me how to show this in PF return

    1. comment-author
      Rishabh Ranjan

      Hi Swapnil,

      For the payment made to employees you need to file the returns. Furthermore, you need to report employees’ last working day if they are no longer employed by you.

  8. comment-author
    Maya

    Hi, I was working as an Indian employment (10+ years) and less than 58 age, but I am now permanently overseas and have become an overseas employee, with no salary component in India.
    So do I still need to mandatory opt for Scheme Certificate as I plan to withdraw my full PF?

    Maya

  9. comment-author
    Amal

    I am planning to take a long leave of 6 months from my job. What will happen to the PF contributions? Will the employer pay or will there be a break??

    1. comment-author
      Rishabh Ranjan

      Hi Amal,

      PF contributions are made on the basis of the employee’s earned salary. Monthly PF contributions will only continue as long as the employee receives monthly salary.

    1. comment-author
      Rishabh Ranjan

      Hi Sadhu,

      In case the issue is with regard to the Date of joining and exit then a joint declaration form needs to be submitted to the current employer for corrections on the PF portal which will enable you to apply for an online PF transfer.

    1. comment-author
      Rishabh Ranjan

      Hi Soorya,

      Once a request is submitted online it cannot be cancelled. Only an EPFO authority can reject the application. You can visit the respective PF office and meet the concerned case worker for the rejection of claim form.

  10. comment-author
    Gaurav

    Hi Sir,

    I have joined a company and it’s been 4 months and I want to opt out of PF due to my personal commitments and the amount of PF gets deducted from salary that is CTC so 1800( Employer and 1800 employee both get deducted from my salary per month and come and it’s not possible to save anything in hand. I request to guide me how can I opt out of this and I have no one to tell this. Please advise

    1. comment-author
      Rishabh Ranjan

      Hi Gaurav,

      According to the EPFO, “A member of the Fund shall continue to be a member until he withdraws his complete PF and Pension dues”. Therefore, you need to continue the PF contribution as long as you’re working at the company.

  11. comment-author
    Prakash Sunki

    Sir, I am 65 years old and have worked in private company about 6 years after6 months retirement from my previous company. I have resigned from the present company last year October month. My employer has settled all my PF account and cleared everything. But I am unable to transfer the EPF amount to my Bank to claim from the EPF unified portal. I am getting my registered aadhar OTP in the last stage, when the OTP was filled in the OTP validation and sent the OTP number, it was not validating the OTP ,it is just stopping. I have been trying this 4 to 5 times everyday for the last couple of weeks. Kindly advise, what is to be done to get this on line claim process.

    1. comment-author
      Rishabh Ranjan

      Hi Harshala,

      Without updating Aadhaar (which is a part of KYC) you cannot claim any PF dues online. You can upload KYC details by logging into the EPFO portal with your UAN and password, and by sending a screenshot of the completed KYC to the employer for a Digital Signature Certificate (DSC) approval.

    1. comment-author
      Rishabh Ranjan

      Hi Arun,

      EPF contributions for both employee and employer is calculated on the basis of your BASIC+DA i.e. 12% of BASIC + DA. This amount (BASIC + DA) is capped at INR 15,000. In other words, if your BASIC + DA exceeds INR 15,000, the maximum EPF contribution will not exceed INR 1,250. However, if your BASIC + DA falls below INR 15,000 then the capping doesn’t apply and the contributions are calculated accordingly.

      Of the 12% contributed by the employer, 8.33% of BASIC + DA is diverted towards PF and the remaining 3.67% goes towards EPS.

      Please follow the aforementioned mode of calculation, check your monthly contributions, and report discrepancies (if any) to your employer.

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