Basics of Employees’ Provident Fund | EPF contribution rate and rules

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Basics of Employees’ Provident Fund | EPF contribution rate and rules

Employees’ Provident Fund (EPF) is one of the most beneficial and popular platforms of savings for salaried persons in India. Employees’ Provident Fund Scheme (EPF) is administered by Employees' Provident Fund Organisation (EPFO), a statutory body under the Ministry of Labour and Employment, Government of India. 

The EPF account benefits are extended to all the establishments in which 20 or more persons are employed. If you are working in a private sector organisation, you must be contributing to the EPF scheme. In this post, I will discuss the basics of Employees’ Provident Fund (EPF).

Employees’ Provident Fund (EPF)

Employees’ Provident Fund (EPF) is a retirement benefits scheme under the Employees’ Provident Funds and Miscellaneous Provisions Act 1952. This fund is created with a purpose of providing financial security and stability to employees. 

The EPF is created with the purpose to help employees save a fraction of their salary every month so the fund can be used in an event that the employee is temporarily or no longer fit to work or at retirement. Under EPF scheme, employers and employees both contribute 12% of wages. 

Currently, there are three schemes under the Act.

1. Employees’ Provident Fund Scheme (EPF)

2. Employees’ Pension Scheme (EPS)

3. Employees’ Deposit Linked Insurance Scheme (EDLI)

Also read: How to download EPF Passbook via UMANG App?

EPF Scheme 1952

1. Accumulation plus interest upon retirement and death.

2. Partial withdrawals allowed for education, marriage, illness and house construction.

3. Housing scheme for EPFO members to achieve Hon’ble Prime Minister’s vision of housing to all Indians by 2022.

Pension Scheme 1995

1. Monthly benefit for superannuation/retirement, disability, survivor, widow(er) and children.

2. Minimum pension on disablement.

3. Past service benefit to participant of erstwhile Family Pension Scheme, 1971.

Insurance Scheme 1971 (EDLI)

1.  Benefit provided in case of death of an employee who was a member of the scheme at the time of the death.

2. Benefit amount 20 times of the wages. Maximum benefits of 6 lakhs.

EPF contribution rate

Rates of contribution of EPF, EPS, EDLI, Administrative charges

Scheme Name	Employee contribution	Employer contribution
Employees’ Provident Fund (EPF)	12%	3.67%
Employees’ Pension Scheme (EPS)	0	8.33%
Employees’ Deposit Linked Insurance (EDLI)	0	0.50%
EPF Administrative Charges	0	0.85% (w.e.f. 01/01/2015)
EDLI Administrative Charges	0	0.01%

Contribution by Employee

Presently, 12% of your salary (Basic wages plus dearness allowance) gets contributed to the EPF account on a monthly basis. Your employer deducts this contribution part before paying salary to you. 

Contribution by Employer

As per EPF regulations, your employer also contributes an equal amount i.e. 12% of your salary. However, the total share of employer’s contribution does not go into EPF account. 8.33% of employer’s contribution goes to EPS (Employees Pension Scheme) but it is calculated on Rs. 15000.

Also read: How to check EPF balance by missed call facility?

Employee can pay higher voluntary contribution

The employee can voluntarily contribute more than the mandatory contribution of 12%. You can give a mandate to your employer to avail this benefit. Generally, employees pay only 12% of their salary but they can pay up to 100% of their salary. 

This higher contribution by the employee is called Voluntary Provident Fund. However, the higher voluntary contribution is not mandatory for the employer. This Voluntary Provident Fund also earns tax-free interest.

Concession in EPF contribution

The 10% rate of contribution is applicable for

1. Any company in which less than 20 employees are employed.

2. Any company which has been declared sick by the Board for Industrial and Financial Reconstruction.

3. Any company which has accumulated losses equal to or exceeding its entire net worth and

4. Any company in following industries

(i) Jute (ii) Beedi (iii) Brick (iv) Coir and (v) Guar gum Factories.

Tax Benefits

EPF scheme is an EEE (Exempt, exempt, exempt) category investment. You can avail all round tax benefit from this scheme. The amount of your contribution to EPF scheme is tax deductible up to Rs. 1.5 lakh under Section 80C. 

Note that you cannot claim tax deduction under Section 80C on the employer's contribution. Your contribution in EPF account, the interest you earn on EPF and the money you withdraw after completing 5 continuous years of service are exempt from income tax. 

However, if you withdraw your EPF before completing 5 continuous years of service, the withdrawal amount shall be taxable in the financial year of withdrawal.

Also read: How to register EPF/PF complaint online?

EPF Withdrawal rules

Complete withdrawal: Complete withdrawal of EPF is allowed under any of the following circumstances

1. When EPF subscriber retires from employment.

2. EPF subscriber can withdraw EPF after remaining unemployed for a period of two months.

Partial withdrawals/Advances: EPF subscriber can withdraw from EPF account for purposes such as marriage, education, medical treatment, purchase/construction of house/ flat, purchase of site/ plot, repair of the house, repayment of housing loan etc. 

Note that for every partial withdrawal / advance, there are certain conditions that need to fulfill to be eligible for partial withdrawal/advance. EPF members can apply for partial withdrawal/advance online via Member's portal.

Advance scheme for housing 

EPF members can now use 90% of their savings in EPF accounts to make down payments to buy houses, flats or to buy lands and use their EPF accounts for paying EMIs of home loans.

Also read: Transfer EPF automatically online on change of job 

Interest on EPF when you stop contributing

As per new rules, your EPF account will earn regular interest up to the age of 58 years. Whether you stop contributing to your EPF account, EPFO will credit interest in your account till you turn 58. 

However, As per Income tax laws, the interest you earn in your EPF account after you quit your job is taxable income for you.

Universal Account Number (UAN)

UAN stands for Universal Account Number. UAN is a 12 digit unique number assigned EPF subscribers by EPFO. The UAN number helps EPF subscribers manage their EPF accounts online with ease and hassle-free. This is permanent and remains same even with the change of the job. 

UAN helps you to transfer your EPF balance easily when you change your job. If you don’t know your UAN, contact your employer. However, to avail the benefits of the UAN, you have to activate your UAN. 

Activation of UAN can be done through the UAN member portal. Once activated, you can easily check your EPF account details through the UAN member portal.

Also read: Online correction in Name, DOB and Gender in EPF UAN

Also read: How to link Aadhaar to EPF account online?

Also read: How to withdraw EPF online through UAN?

Also read: Things you should know about PPF

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Basics of Employees’ Provident Fund | EPF contribution rate and rules