If you work in India, you’ve likely heard of the Employees Provident Fund (EPF), but you might not fully understand what it is or how it works. Whether you’re an employee or employer, understanding the EPF is important because it’s a key part of India’s social security system.
In this guide, we’ll break it down in simple terms, so you can understand how it works, why it matters, and how you can benefit from it.
What is the Employees Provident Fund (EPF)?
The Employees Provident Fund (EPF) is a government-backed savings scheme that helps employees save money for their retirement. It’s specifically designed for people working in the organized sector in India. Every month, a part of an employee’s salary is deposited into an EPF account, and this money grows over time with interest.
When employees reach retirement age, or if they face certain situations like a medical emergency or buying a house, they can withdraw the money from their EPF account.
How Does EPF Work?
The working of EPF is simple. Both the employee and the employer contribute a portion of the employee’s salary into the EPF account. This amount builds a retirement corpus that grows over time with interest. When you retire or meet other qualifying conditions, you can withdraw the amount along with the interest.
Why is EPF Important?
- Retirement Savings: The EPF helps you save money for your retirement, ensuring you have financial security when you stop working.
- Tax Benefits: Contributions to EPF qualify for tax deductions under Section 80C of the Income Tax Act.
- Insurance Coverage: As a member of the EPF, you are automatically covered by the Employees’ Deposit Linked Insurance (EDLI) scheme, which provides life insurance benefits.
- Loan Facility: Employees can take loans against their EPF balance for emergencies, buying a house, or other important needs.
How is the EPF Managed?
The EPF is managed by the Employees Provident Fund Organisation (EPFO), a government body that oversees everything related to EPF accounts. This includes monitoring contributions, processing withdrawals, and addressing complaints. The EPF is mandatory for businesses with 20 or more employees.
Who Contributes to the EPF?
Both the employee and the employer contribute to the EPF:
- Employee Contribution: Every employee contributes 12% of their basic salary and dearness allowance (DA) to the EPF.
- Employer Contribution: The employer also contributes 12% of the employee’s basic salary and DA.
EPF Schemes Under the EPFO
The EPFO offers a few key schemes that benefit employees:
- Employees’ Provident Fund Scheme 1952 (EPF): This is the main savings scheme where both the employer and employee contribute.
- Employees’ Pension Scheme 1995 (EPS): This scheme provides a monthly pension to employees after retirement, funded through a portion of the employer’s contribution.
- Employees’ Deposit Linked Insurance Scheme 1976 (EDLI): This provides life insurance to employees, with a lump sum payment to the nominee if the employee passes away while employed.
How is EPF Contribution Calculated?
Let’s break down how the EPF contribution is calculated. If your basic salary is ₹20,000 and your DA is ₹2,000, your total salary will be ₹22,000. Here’s how the contribution works:
- Employee Contribution: 12% of ₹22,000 = ₹2,640
- Employer Contribution: 12% of ₹22,000 = ₹2,640
This amount is deposited into your EPF account every month. The government sets an interest rate on your balance, which is currently 8.25% for the financial year 2023-2024. Over time, your balance grows with this interest.
Employee’s contribution to EPF
The employer must deduct the employee’s EPF contribution from their salary, so this amount is already included in the taxable salary and should not be counted again as part of the gross salary. The employee’s EPF contribution is eligible for a tax deduction under Section 80C of the Income Tax Act, 1961, up to a maximum of Rs 1,50,000 for the financial years 2023-24 and 2024-25.
Employer’s contribution to Employee Provident Fund
Employer contributions to the Employee Provident Fund (EPF) are separate from the employee’s salary and are mandatory. The employer must contribute up to 12% of the employee’s salary to the EPF, and this contribution is exempt from tax. However, any contribution exceeding 12% is added to the employee’s gross salary and is taxable.
The employee cannot claim a deduction under Section 80C for the employer’s contribution to the EPF. For this purpose, “salary” includes basic salary, dearness allowance (if part of the employment terms), and commission based on a fixed percentage of turnover.
Interest on employee provident fund
Interest earned on Employee Provident Fund (EPF) contributions from both the employer and employee is considered separate income, not part of the salary.
The interest credited to the EPF account is exempt from tax up to a rate of 9.5% per annum under Section 10. Any interest earned above 9.5% per annum is added to the employee’s gross salary and taxed accordingly.
How to Check Your EPF Balance?
It’s important to keep track of your EPF balance. Here are a few simple ways to check it:
- Online via EPFO Portal: Visit the EPFO Member Portal, log in using your Universal Account Number (UAN), and check your balance.
- Missed Call: Dial 011-22901406 from your registered mobile number to get your balance details.
- SMS: Send an SMS to 7738299899 with your UAN and the EPFO office code to get your balance.
How to Withdraw from Your EPF Account?
There are several reasons you might need to withdraw money from your EPF account:
- Retirement: You can withdraw the entire balance when you retire.
- Resignation or Leaving Your Job: You can withdraw the amount, but if you don’t transfer your EPF to a new employer, the process may take longer.
- Other Reasons: You can also withdraw your EPF in certain cases like medical emergencies, buying a house, or paying for education.
Tax Implications of EPF Withdrawal
Withdrawals from your EPF account before completing five years of service are tax deductible. The amount withdrawn will be added to your income and taxed accordingly. However, if you withdraw after five years, it is tax-free.
Also Read: How Does Income Tax Apply to EPF Withdrawals in India?
How to Transfer Your EPF Account?
If you change jobs, you don’t need to close your old EPF account. You can transfer the balance to your new employer’s EPF account by following these steps:
- Log in to the EPFO Member Portal with your UAN.
- Go to the ‘Online Services’ tab and click on ‘One Member – One EPF Account Transfer Request’.
- Fill in the details of your previous employer’s EPF account and submit the request.
The balance from your old account will be transferred to your new employer’s account, so you won’t lose any of your accumulated savings.
EPF vs Other Retirement Schemes
There are several retirement savings schemes in India, and people often compare EPF with other options like the National Pension Scheme (NPS) and Public Provident Fund (PPF).
Here’s how EPF compares to these schemes:
| Scheme | EPF | NPS | PPF |
| Tax Benefits | Yes, under Section 80C | Yes, but with conditions | Yes, under Section 80C |
| Interest Rate | Fixed (currently 8.25%) | Market-dependent returns | Higher (7-8%) |
| Loan Facility | Yes | No | No |
| Insurance Coverage | Yes | No | No |
| Voluntary or Mandatory | Mandatory for eligible employees | Voluntary | Voluntary |
Why Should You Nominate a Beneficiary?
It’s very important to nominate someone who can claim your EPF balance in case something happens to you. This ensures that your savings are passed on smoothly. To nominate a beneficiary:
- Log in to the EPFO Member Portal.
- Go to the ‘Manage’ tab and click on ‘Modify Basic Details’.
- Add your nominee’s details and save.
EPF Grievance Redressal
If you face any problems with your EPF account, such as delays in withdrawals or errors in account details, you can file a complaint with the EPFO. Here’s how:
- Visit the EPFO Grievance Management System (EPFiGMS).
- Register with your UAN and personal details.
- Choose the type of complaint and submit it.
The EPFO aims to resolve complaints within 30 days.
In Conclusion
The Employees Provident Fund (EPF) is an essential tool for building your retirement savings and ensuring financial security. Whether you’re contributing to it as an employee or managing it as an employer, understanding how it works, how to monitor your balance, and knowing how to withdraw or transfer funds is crucial.
By making regular contributions, nominating a beneficiary, and taking full advantage of the tax benefits, you can ensure that your EPF provides a solid financial foundation for your future.
Frequently Asked Questions (FAQs)
Can I Withdraw EPF Before Retirement?
Yes, you can withdraw your EPF under specific circumstances like medical emergencies or purchasing a house.
What Happens to EPF After the Death of an Employee?
The funds in the EPF account are passed on to the nominee or legal heir.
What’s the Current EPF Interest Rate?
The current EPF interest rate for the financial year 2023-2024 is 8.25%.
Can I Transfer My EPF?
Yes, you can transfer your EPF to a new employer using the EPFO portal.
Is EPF Tax-Free?
Contributions to EPF are tax-deductible, and withdrawals are tax-free after five years of service. By understanding and managing your EPF account wisely, you can secure a stress-free and comfortable retirement.
