PF commonly refers to Provident Fund, and in India, it primarily means the Employees’ Provident Fund (EPF). This is a mandatory retirement savings scheme for salaried employees, managed by the Employees’ Provident Fund Organisation (EPFO).
The EPFO is one of the largest social security organizations globally and operates under the administrative control of the Ministry of Labour and Employment, Government of India.
What is EPF and its Purpose?
The EPF scheme aims to provide financial security to employees in the organized sector, particularly after their retirement, or in case of unforeseen circumstances like death or disability. It’s a long-term savings instrument where both the employee and the employer contribute a portion of the employee’s salary every month. These contributions accumulate over time and earn interest, forming a substantial corpus for the employee.
The Employees’ Provident Funds & Miscellaneous Provisions Act, 1952, and its associated schemes govern the EPF.
Key Schemes under EPFO
EPFO administers three main schemes:
Employees’ Provident Funds Scheme, 1952 (EPF)
This is the core provident fund scheme where the major portion of contributions goes. It provides a lump sum benefit upon retirement, resignation, or death. Partial withdrawals are also allowed under specific conditions (e.g., for house construction, education, marriage, medical emergencies).
Employees’ Pension Scheme, 1995 (EPS)
A portion of the employer’s contribution (up to a certain limit) is directed towards this scheme. It provides monthly pension benefits to employees and their families (spouse, children) upon superannuation, disability, or death. The amount of pension depends on the employee’s average salary and years of service.
Employees’ Deposit Linked Insurance Scheme, 1976 (EDLI)
This scheme provides life insurance benefits to the nominee/legal heir of a deceased employee who was a member of the scheme. The benefit amount is linked to the employee’s wages and the provident fund balance.
Applicability and Eligibility
Mandatory for Establishments
Any organization that employs 20 or more individuals is generally liable to extend EPF benefits to its employees.
Employee Eligibility
Employees drawing a basic salary plus dearness allowance up to ₹15,000 per month are mandatorily covered under the EPF scheme. Employees earning more than ₹15,000 can also become members with mutual consent of the employer and employee, and with the approval of the Assistant PF Commissioner.
EPF Contributions (Current Rates)
As of the current understanding (and based on FY 2024-25 rates):
- Employee’s Contribution: 12% of Basic Wages + Dearness Allowance (DA).
- Employer’s Contribution: 12% of Basic Wages + Dearness Allowance (DA).
Breakdown of Employer’s Contribution
- 3.67% goes to the EPF Scheme, 1952.
- 8.33% goes to the EPS Scheme, 1995 (subject to a maximum of ₹1,250 per month, if the employee’s basic + DA is ₹15,000 or more). If basic + DA is less than ₹15,000, 8.33% of that amount is contributed to EPS.
- 0.50% goes to the EDLI Scheme, 1976 (subject to a maximum of ₹75 per month on a wage ceiling of ₹15,000).
- 0.50% (approx.) goes to EPF Administrative Charges (usually calculated on total wages, subject to a minimum).
Total Contribution
While both employee and employer contribute 12% each, the effective amount going into the employee’s EPF account from the employer’s side is 3.67%, with the rest diverted to pension and insurance.
Interest Rate
- The interest rate on EPF deposits is declared annually by the Central Board of Trustees (CBT) and approved by the Ministry of Finance.
- For FY 2024-25, the interest rate on EPF balance has been approved at 8.25%.
- Interest is calculated monthly on the closing balance of the previous month but is credited annually to the account.
Benefits of EPF
Tax Benefits (EEE Status)
- Employee’s contribution is eligible for deduction under Section 80C of the Income Tax Act (up to ₹1.5 Lakhs).
- Earned interest is generally tax-exempt (though interest on contributions exceeding certain limits, currently ₹2.5 lakh for employees without employer contribution, and ₹5 lakh for those with, is now taxable).
- Entire withdrawal amount is tax-exempt if withdrawn after 5 years of continuous service.
Retirement Savings
Provides a substantial corpus for financial security post-retirement.
Pension
Provides a regular monthly pension under EPS.
Life Insurance
Offers insurance cover under EDLI in case of the employee’s demise.
Emergency Fund
Allows for partial withdrawals for specific life events (medical emergencies, marriage, education, housing) under certain conditions.
Guaranteed Returns
Being a government-backed scheme, it offers secure and guaranteed returns.
Compulsory Savings
Promotes disciplined savings due to mandatory monthly deductions.
Universal Account Number (UAN)
What is UAN
UAN is a 12-digit unique number allotted to every employee contributing to EPF. It acts as an umbrella for multiple Member IDs allotted to an individual by different employers.
Lifetime Validity
UAN remains the same throughout an employee’s career, even if they change jobs.
Services
UAN enables employees to manage their PF account online, including checking passbook, filing claims, transferring funds, and updating KYC details.
Activation
Employees need to activate their UAN on the EPFO member portal. This requires linking Aadhaar, PAN, and bank account details.
EPF Withdrawal Rules
Full Withdrawal
- Retirement: Upon reaching 58 years of age.
- Unemployment: If unemployed for more than one month (can withdraw up to 75% of the balance). If unemployment continues for two months or more, the remaining 25% can be withdrawn.
Partial Withdrawal
Allowed for specific purposes after fulfilling certain service conditions and limits:
- Medical Treatment: For self, spouse, children, or parents (no service period limit).
- Higher Education: For self or children (after 7 years of service).
- Marriage: For self, son, daughter, brother, or sister (after 7 years of service).
- House Purchase/Construction: For buying land (24 months’ basic+DA) or house (36 months’ basic+DA) (after 5 years of service).
- House Renovation/Repair: (after 5 years of service and 10 years after house completion for second time).
- Repayment of Home Loan: (after 10 years of service).
Taxability on Withdrawal
- Withdrawal after 5 years of continuous service is generally tax-exempt.
- Withdrawal before 5 years of continuous service is generally taxable, unless due to reasons beyond the employee’s control (e.g., illness, closure of business). TDS (Tax Deducted at Source) is applicable if the amount exceeds ₹50,000 and withdrawn before 5 years.
Online Services and Digital Initiatives
EPFO has significantly digitized its services through the Unified Member Portal (UAN Portal) and the UMANG App, allowing members to.
- View their EPF passbook.
- File claims (for withdrawal, transfer).
- Activate and link UAN with Aadhaar.
- Update KYC details.
- Download UAN card.
- Track claim status.
- Submit Digital Life Certificate (for pensioners).
Get help for PF registration from our tax experts. PF (EPF) is a cornerstone of social security in India, providing a structured and secure way for salaried individuals to build a retirement corpus and address specific financial needs during their working life.