What is EPF and how it works

What is EPF?

Employees’ Provident Fund, commonly known as EPF, is a scheme that aims at providing social security and retirement benefits to the salaried employees. EPF is maintained by the Employees’ Provident Fund Organisation (EPFO) and is covered under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. EPFO works under the direction of the government and is administered through the Ministry of Labour and Employment. One can visit the official website of EPFO to know about what is EPF and how it works before he decides to apply for an EPF account.


How EPF Works


EPF is a collection of funds contributed by the employer and his employee every month. The employee and the employer contribute 12% of the basic salary ( plus dearness allowance, if any) to the EPF India. The complete 12% of the employee’s contribution goes into his EPF account, along with 3.67% (out of 12%) from his employer. The remaining 8.33% goes from the employer’s side and is switched to the Employee’s Pension Scheme. The contributions made by the employer and his employee earn a fixed amount of interest set by the EPFO. Also, the employee can withdraw his entire fund without worrying about paying any tax as EPF is tax-free. The total funds from the EPF can be withdrawn by the nominee or the legal heir of the employee after his death, or the employee himself can withdraw the fund after he resigns.

Some eligibility criteria to avail the EPF are:


  • Organizations with 20 or more employees must register under the EPFO scheme. Organizations with less than 20 employees can also register voluntarily.


  • If a salaried employee receives less than Rs.15,000 per month (basic plus dearness allowance), then the employee must get an EPF account opened by the employer.


  • If a person draws a salary higher than Rs.15,000 per month, he will be termed a non-eligible employee, and he doesn’t need to become a member of the EPF. But he can still register under the EPFO scheme with the consent of the employer and approval from the Assistant PF Commissioner.


  • From the very first day, an employee joins an organization. He is directly eligible to avail Provident Fund, insurance, and pension benefits.


Although the money deducted from the employee’s salary goes totally into the Provident Fund of the employee, the contributions made by the employer is divided into different parts. Out of the 12% contribution made by the employer, 3.67% goes to the Employees Provident Fund while the remaining 8.33% goes into Employee’s Pension Scheme. 


The money accumulated in an employee’s PF account attracts certain interests, which is 100% tax-free. Recently, it has been notified by the labor ministry that the rate of interest on Employees Provident Fund for 2018-19 will be 8.65%. Though the interest is calculated every month, it is transferred to the EPF account every year on 31st March of the applicable financial year. The interest is only offered on the inoperative accounts of employees who have not attained the retirement age.


Employee’s Provident Fund is a good savings platform that helps the employees in saving a fraction of their salary every month, which can be used after their retirement. The employees can also withdraw partially from their EPF account before their retirement if they have completed seven years of deposit. However, the maximum one can withdraw 90% of the entire amount.



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