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.

  12. comment-author
    vinit shah

    hello –
    i am an employer having less than 10 employees but to picka work order of a client its a “norm” to be having registered to pf and esic, however when i spoke to my employees no one is ready to allow any deductions from their salaries. All employees are above 15000 a month.
    I have already registered to PF ESIC , what shoul i do???

    1. comment-author
      Rishabh Ranjan

      Hi Vinit,

      Speaking of ESI, considering that you have contract employees such as security and housekeeping, then there will be 10 or more employees. For this reason, your establishment needs to be covered under ESI.

      As for PF, there are two ways you can go about it. First, your establishment needs at least 20 employees to cover them under PF. You can also opt for Voluntary PF Coverage if employees are interested in PF Contribution.

      In the above case, since you already registered under PF and ESI, then you need to meet the monthly compliance as per the Act.

  13. comment-author
    Nootan

    Hi Rishab,

    I was unemployed for 3 months and have withdrawn my FULL PF amount. Now I got a new job in another company.
    Since
    — I have already withdrawn my FULL PF amount.
    — And my Basic Salary in the new company I have joined is more than Rs.15,000/-

    Can I opt out of PF contribution ??? please reply.

    1. comment-author
      Rishabh Ranjan

      Hi Nootan,

      Since you were not a member of PF at the time of joining the company, you can opt out of PF (if your PF wages is above INR 15,000).

  14. comment-author
    Aasif

    Hello Sir,

    On my first job i had opened pf account and that time my basic salary was 13000/- so i was contributing 1250 to eps. But now i am changing my company where my basic salary is more than 15000 so is it compulsory for me to contribute to epf and eps ?

    Eagerly waiting for your answer.

    1. comment-author
      Rishabh Ranjan

      Hi Aasif,

      Yes, once you become an EPS member, you need to continue with the EPS contributions. However, EPS will be deducted on the basis of the capping i.e.INR 15,000.

  15. comment-author
    Hema Kumar S M

    An employee got retired from an organisation.

    Now want to take it into employment. But he is not interested to make PF contribution. Whether we can get exception for this person by not remmiting to PF?

    Any method is there to opt out of PF / not getting into PF contribution for a retired employee

    1. comment-author
      Rishabh Ranjan

      Hi Hema,

      Since the employee has retired, and if his basic wages is above INR 15,000 he can be excluded from PF membership by submitting PF Declaration form (Form 11).

    1. comment-author
      Rishabh Ranjan

      Hi Anil,

      1. Please refer to the following document released by the EPFO to know more about the opt-out option under EPF.

      2. Yes, if the employee isn’t meeting the conditions such as:
      – PF wages not more than INR 15000
      – Employee already enrolled as a PF member etc.

  16. comment-author
    Mohan ram

    Hi sir, if employer and employee is not interested to pay PF but they need ESI.. also employees submitting form11 and self declaration form.. is it possible?

    1. comment-author
      Rishabh Ranjan

      Hi Mohan,

      PF contribution is not based on the interest of the employee and the employer. Once the establishment employs 20 or more employees it is mandatory to cover the establishment under PF.

      As for the contributions, those employees who draw Basic/DA less than INR 15,000 need to be covered under PF. Employees who draw Basic/DA above INR 15,000 can opt out of PF, provided that the said employees are first-time employees.

  17. comment-author
    Rahul

    Hi, I had opted out of epf when I joined my job 3 years ago (this was my first job)
    Now I want to join epf with current employer ( no change of job ).
    1. Is it possible to do this? I asked the HR of my company and still no response.
    2. Is there any specific rule that prevents me joining epf after opt out ?

    1. comment-author
      Rishabh Ranjan

      Hi Rahul,

      You can opt for PF by submitting a written request to his employer stating the reason for the initial opt out. Once the employer approves, your date of joining EPF scheme will differ from the actual date of joining. (Actual date of joining will be considered for all employment benefits).

  18. comment-author
    kumar

    HI rishab
    Good day to you..It is nice to see you replying all form of queries…thank you
    Me too have one query ..could you please kindly help me out..
    am not in job for some months,,Previously had two PF accounts with 2 companies (against single UAN)..Recently withdrawn all of it using form 19…got approved…also gave form 10c ..in process..

    i may join a concern next month ..want to opt out of this EPF & EPS thing..want to increase in hand salary..is it possible to give a request since my basic would be above 15k??..read somewhere PF commissioner can declare excluded employee against employee request..but company seem very strict to deduct EPF…could you please tell me any rules or form, to opt out while joining another company in future…is there any way to get out this EPF mess..thanks in advance..

    1. comment-author
      Rishabh Ranjan

      Hi Kumar,

      Since you’re not an EPF member at the time of joining the new employer and your Basic wage is above INR 15,000, you can opt out of PF by submitting the PF declaration form (Form 11).

  19. comment-author
    Pooja

    Hello,

    I want to ask two things –
    1. As per policy of PF now contribution is calculating on Gross (Except HRA & Attendance Allow.) with the ceiling of 15000/-. so if a new employee wants to opt out from PF scheme and his total gross is 18100/-(including 3000-HRA), then can he opt out from PF bcoz we can see his gross will be more than 15000 after deduction of HRA ?

    2. I saw form no 11 but where no any option is given for opt out of PF.
    please suggest.

    Thanks..

    1. comment-author
      Rishabh Ranjan

      Hi Pooja,

      1. Employee’s PF wage (not on gross wages) should be above INR 15,000 in order to be excluded from PF.
      2. Please refer to Sl.No. 7 & 8 which asks ‘Whether earlier a member of EPF/EPS – Yes/No’.

  20. comment-author
    Vishal Garg

    Hello Sir,
    Thanks for this article.
    Suppose i am joining a new company above 15000 Salary , and i earlier had PF contributions , So is it necessary to withdraw EPS pension fund also in order to be a excluded member.
    and
    what if I have a scheme Certificate of 10 years of service ?

    1. comment-author
      Rishabh Ranjan

      Hi Vishal,

      Once you become an EPF and EPS member, you need to continue the membership, even at the time of joining service under the new employer.

      At the time of joining if you are not a member of EPF and EPS (or claimed the PF and Pension dues) then you can be excluded from EPF and EPS membership.

  21. comment-author
    Shilpa Mani

    Hello,
    We are an Establishment with less than 10 Employees. All employees are drawing more than PF Wage of Rs.15,000. Hence we are not registered into EPFO. A new Employee with salary of more than Rs50,000 wants to contribute PF. He has is own UAN number. Is there any way where he can contribute into his EPF without Company in picture.

    1. comment-author
      Rishabh Ranjan

      Hi Shilpa,

      An establishment should have a minimum of 20 employees for PF Coverage. Without employer’s PF coverage, an employee cannot contribute towards EPF.

  22. comment-author
    Anoop

    Dear Sir,
    We have hired contract employee for three months on an hourly rate basis. He was a member of EPF in his previous employment but doesn’t want to contribute to EPF for this limited period hourly rate based contract employment. Our organisation though registered with EPF has less than 5 employees at present being a start-up. Please advise on our legal obligations towards deducting EPF contribution from the hourly rates payable to the contract employee.

    1. comment-author
      Rishabh Ranjan

      Hi Anoop,

      Although you were a part of PF in his earlier employment, you won’t be under the current employer as they are not covered under EPF for the very fact that the employee count is 5 which falls below the mandated threshold count of 20 — a prerequisite for PF coverage. Your current employer can process your salary without PF deductions, but once they attain 20 or more employees they can register for PF and start covering all employees under the PF scheme.

  23. comment-author
    Mitali Medhi

    Hi, Is it possible to hire employees on fixed contract with out PF and ESI, If yes then what is the procedure. Apart from that if any employees take home is less then minimum wage then what is the process of calculating basic wage for PF.. for example if any employees salary is 7k (which is less then minimum wage) then what will be his basic salary..

    1. comment-author
      Rishabh Ranjan

      Hi Mitali,

      While hiring employees on a fixed contract, PF and ESI are mandatory. It can only be excluded when the employee’s basic wage is above INR 15,000 and Gross wage is above INR 21,000.

      When the employee’s salary is less than the minimum wages ie., INR 7,000, PF needs to be deducted on the basis of INR 7,000.

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