[ecis2016.org] Employees Provident Fund or EPF is a scheme that helps build retirement fund. In EPF scheme, an employee and the employer contribute a certain sum to the employee’s PF account
Those working in a corporate set-up in India can build a pension fund, thanks to the availability of the Employee Provident Fund or EPF. The EPF is more commonly known as just PF or Provident Fund. The body responsible to manages the entire operations is known as the EPFO.
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Know all about EPF passbook in this guide.
What is EPFO?
Governed by the Labour Ministry, the EPFO was launched in 1951. The EPFO is the short from for the Employees’ Provident Fund Organisation. The EPFO helps government, as well as private sector employees in India, to save money for retirement.
The EPFO allocates each EPF member a Universal Account Number (UAN), which remains a PF member’s unique identity for all PF-related matters.
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What is EPF?
The EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. All companies with an employee strength of 20 or more are obliged to register with the EPFO and offer the benefits of the EPF scheme to their employees. In some cases, companies must do so even if they employ less than 20 people.
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What is PF?
Another name for EPF, PF is a government-managed pension scheme meant to help salaried employees in India build a corpus for their retired life.
PF full form
EPF stands for Employee Provident Fund that is a scheme for providing a monetary benefit to all salaried individuals after their retirement.
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PF eligibility
It is mandatory for all employees with a salary up to Rs 15,000 a month at the time of joining work to join the EPF scheme. An employee whose monthly salary is more than Rs 15,000 can also join the EPF scheme with the permission of the assistant PF commissioner.
EPF: Employee and employer contribution
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The employee and employer each contribute 12% of the employee’s basic salary and dearness allowance towards the EPF scheme. While an employee may have the option to increase his/her EPF contribution subject to certain conditions, the employer is not obligated to increase his share beyond the ceiling limit.
EPF contribution
| Contributor | Monthly percentage of salary plus dearness allowance |
| Employer | 12% |
| Employee | 12% or 10%* |
| Total | 24% or 22%* |
*Companies with an employee strength of 20 or less are free to make only 10% contribution to the employee’s EPF account. The same is applicable to companies that suffer losses equal to or more than their net worth and sick companies. All these updates are available in the EPF passbook.
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Note that your employer’s contribution of 12% goes into different baskets. While 8.33% of this contribution goes into the Employee’s Pension Scheme or EPS account, only 3.67% goes into the EPF account. The entire contribution of the employee on the other hand goes into the EPF account.
EPF contribution for women
With a view to empower women, the government reduced women employees’ contribution to 8% for the first three years of their employment, depending on the type of company, in Budget 2018.
Salary components for the purpose of EPF contribution calculation |
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Salary components excluded from EPF contribution calculation |
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Can you contribute a higher amount in EPF?
Yes, you can contribute a higher amount to your EPF account through the Voluntary Provident Fund (VPF).
EPF calculation
For EPF contribution calculation, basic salary, dearness allowance and retaining allowance are considered. On retirement, employees get a lump-sum amount on these contributions along with interest.
EPF calculation example
Suppose your basic salary, plus dearness allowance is Rs 50,000. Your contribution towards your EPF account will be Rs 6,000. However, the minimum amount of contribution to the EPF account for the employer is set at a rate of 12% of Rs 15,000, even though they can voluntarily contribute more. Your employer can apply any of the following combinations to make his contribution in your EPF account:
| Method | Employee contribution | Employer contribution |
| 1 | 12% of basic salary plus DA | 12% of basic pay |
| 2 | 12% of basic salary plus DA | 3.67% of basic pay |
| 3 | 12% of Rs 15,000 | 3.67% of Rs 15,000 |
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Note: The employer can contribute only 8.33% of Rs 15,000 in your EPS account. This means his contribution in your EPS account cannot exceed Rs 1,249 (8.33% of Rs 15,000) even if your basic salary is Rs 50,000.
Supposing your salary for PF calculation purposes is Rs 50,000, the following break-up will be used to deposit your and your employee’s contributions:
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Your contribution: 12% of Rs 50,000 = Rs 6,000
Your employer’s contribution: 3.67% of Rs 50,000 = Rs 1,835
Employer contribution to EPS: 8.33% of Rs 15,000 = Rs 1,250
Since the employer cannot deposit more than 8.33% of Rs 15,000 in your EPS account they transfer the remaining amount in your EPF account. As 8.33% of Rs 50,000 is Rs 4,165, the balance transferred to your EPF account will be Rs 2,915.
Thus, the total balance in the EPF account: Rs 6,000 + Rs 1,835 + Rs 2,915 = Rs 10,750.
EPF account after job change
Employees do not have to apply for the transfer of their EPF accounts when changing jobs. An employee can share the details of his EPF account with his new employer so that the PF contribution can be made to the account. In case you fail to do so, the employer will open a fresh account by providing you a new member ID.
EPF interest rate
Note that the EPFO announces PF interest rate change once a year. In the year in which the EPFO announces the new interest rates of EPF deposits, the rate stays valid for the next financial year. This means the new rate will be applicable from the year starting on April 1 of one year to March 31 of the next year.
The range of EPF deposit interest has been set from 8% per annum to 13% per annum. The interest on EPF deposits may be calculated monthly but it is transferred to your account annually.Foe example, if the EPF rate is 8.1%, then, for monthly interest calculation of your EPF deposit, the rate will be considered as 8.1%/12 or 0.675%.
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EPF interest rate in 2022
The centre approved a rate of 8.1% on EPF deposits for the year 2021-22, on June 3, 2022. In March 2022, the EPFO had proposed to cut the interest rate on provident fund deposits from 8.5% to 8.1% for 2021-22.
This is the lowest PF interest rate in the past four decades. In 1977-70, the EPFO offered 8% interest on EPF contributions. Since then, the interest on PF contributions has been 8.25% or more. The move by the government will impact a total of 60 million EPFO subscribers.
In March, finance minister Nirmala Sitharaman defended a proposal to increase EPF interest rate, saying the rate was dictated by realities, where the interest rate on other small saving instruments was even lower. “There are today’s realities, which do keep us in the context of decisions taken by the central board of EPFO…the fact remains that these are the rates that are prevailing today and it (EPFO) is still higher than the rest of them,” she said.
Tax on PF amount
The interest earned on the money in your PF account is tax-free under the income tax laws. This means that the entire corpus at the time of maturity is exempt from any tax, subject to certain conditions. In fact, the contributions made towards the EPF account also allow an employee to claim deductions under Section 80C.
EPF withdrawal
While the EPF money is meant for use after retirement, an employee can withdraw funds from his PF account in specific circumstances. Read our guide on EPF withdrawals to know the terms and conditions.
EPFO news
Net new EPFO enrollments hit record 12.2 million in FY22
Net new enrollments under the EPFO in 2021-22 stood at 12.2 million, compared to 7.71 million in 2020-21, 7.8 million in 2019-20 and 6.11 million in 2018-19. EPFO provisional payroll data also show 0.118 million companies contributed for the first time in March 2022.
FAQs
What is the EPF scheme?
The EPF scheme is a centrally-sponsored pension fund programme governed under the rules of the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952.
What is UAN?
UAN or Universal Account Number is a unique identity number allotted by the EPFO to each member. An employee’s UAN acts as an umbrella for the multiple member IDs allotted by different companies where they might have worked.
Can I contribute to my PF account after I stop working?
You cannot contribute to your PF account after you stop working.
Must an employer contribute to an employee’s PF account?
Yes, an employer must contribute to an employee’s PF account under the EPF rules.
Do I have to link my EPF account with Aadhaar?
From June 1, 2021, it is mandatory to link your Aadhaar with your EPF account. In case you fail to do so, the employer’s contribution to the EPF account will not get credited.
Can I opt out of the EPF scheme when my salary increases from the Rs 15,000 threshold?
No, once you become a PF member, you cannot opt out of the EPF scheme even if your salary increases beyond the Rs 15,000 threshold.
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