Home > Income Tax Help Center > Employee Provident Fund (EPF) Last Updated: Sep 20th 2020

Employee Provident Fund (EPF) Explained

Employees' Provident Fund (EPF) is a social security benefit that an employee may get after the employment period or at the time of retirement. The article explains Eligibility, Features, Benefits, EPF Scheme from both Employer and Employee perspective.

Employees' Provident Fund Organisation, India, Ministry of Labour & Employment, Government of India established to manage the social security of the employees

EPFO is one of the world's largest Social Security Organisations in terms of clientele and the volume of financial transactions undertaken per EPFO.

Employee Provident Fund (EPF) Explained

Under EPF scheme, an employee has to pay a certain contribution towards the scheme and an equal contribution is paid by the employer. The employee gets a lump sum amount including self and employer's contribution with interest on both, on retirement.

As per the rules, in EPF

  1. It covers every establishment in which 20 or more people are employed, or
  2. Employees drawing less than Rs 15,000 per month for certain category of industries have to mandatorily become members of the EPF.

Contribution by employer and employee

  1. The contribution paid by the employer is 12 % of the salary.
  2. Salary = [ basic wages + dearness allowance + retaining allowance ]
  3. An equal contribution is payable by the employee also.
  4. In the case of establishments which employ less than 20 employees or meet certain other conditions as notified by the EPFO, the contribution rate for both employee and the employer is limited to 10 percent.

Benefits & Interest

  1. A small monthly investment over the time may help you build better corpus for future.
  2. As a Social Security, the funds help you during the retirement
  3. Provide tax concessions after a minimum period of 5 years of continuous seervice * (check below)
  4. Like any Social Security, it establish a saving discpline to help you during financial emergencies
  5. PF account associated is an independent account that can be maintained after employment, and while switching employments
  6. Starting from FY 2014-15, EPFO deposits 8.75% interest on the contribution.

Workings

  1. Out of employer's contribution, 8.33% will be diverted to Employee Pension Scheme, but it is calculated on Rs 15,000.
  2. for every employee with basic pay equal to Rs 15,000 or more, the diversion is Rs 1,250 each month into EPS.
  3. If the basic pay is less than Rs 15,000 then 8.33% of that full amount will go into EPS. The balance will be retained in the EPF scheme
  4. The EPF withdrawal is not taxable if one has completed at least five years of continuous service.
  5. If one has switched jobs in less than five years but transferred the EPF to the new employer, it will be counted as continuous service.
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