Employees’ Provident Fund
Employees’ Provident Fund (EPF) is a retirement benefit scheme that’s available to all salaried employees. This fund is maintained and overseen by the Employees’ Provident Fund Organization (EPFO) of India. Any organisation employing 20 employees or more is required, by law, to register with the EPFO.
EPF is created with a purpose of providing financial security and stability. Employee contributes in fund on a regular basis (monthly in most cases), thus saving a fraction of their salary every month, to be used in an event that the employee is temporarily or no longer fit to work, or at retirement.
Is Provident Fund (PF) Contribution Mandatory?
Yes, contribution to PF is mandatory for employees who are earning Basic Salary (plus DA, if applicable) upto Rs. 15,000 per month.
Employees earning a Basic (plus DA) Salary of more than Rs. 15,000 can choose not to contribute to PF. Though, opting out of PF will increase your take-home salary, it will also increase your tax liability (The employer PF contribution is exempt from tax and employee’s contribution is taxable but eligible for deduction under section 80C of Income tax Act.). It is strongly recommended to contribute to PF, since it helps you lower your tax liability as well as build a huge corpus for retirement.
IMPORTANT: You can only choose to opt-out of the PF when you start your job. If you are new to job and your monthly Basic (plus DA) is more than Rs. 15,000, you can let your employer know that you don’t want to be part of PF scheme. If a person has been part of PF scheme once, he doesn’t have an option to opt-out of it.
What is the contribution rate (Employee & Employer) for EPF?
Employee and the Employer contribute 12% of your basic salary (plus dearness allowances, if any) into your EPF account.
The amount that the Employee contributes (12% of Basic) from his salary gets directly gets deposited in the EPF account, whereas, the Employer’s 12% contribution is distributed in 2 parts; 3.67% is deposited in EPF account and the remaining 8.33% is added to EPS (Employee Pension Scheme) account.
Apart from the 12% of EPF contribution, employer has to pay some administration charges.
Here’s a table with the breakup of EPF contribution:
|Scheme||Employee Contribution||Employer Contribution
|Employee Provident Fund (EPF)||12%||3.67%
|Employees’ Pension scheme (EPS)||0||8.33%
|Employees Deposit Linked Insurance (EDLI)||0||0.5%
|EPF Administrative Charges||0||0.65%
|EDLIS Administrative Charges||0||0.01%
Employee Pension Scheme (EPS)
- EPS amount is paid only by the Employer (8.33%).
- EPS can be withdrawn at the time of retirement.
- EPS amount cannot be contributed for the Employee who crosses the age of 50 years as he/she wouldn’t be able complete 10yrs of service.
- EPS cannot be collected from the employee who crosses the age of 58 years and is still working as an employee.
- No interest is earned on EPS.
Example of how the PF contributions are distributed for employee and employer:
Basic Salary of Employee is Rs. 10,000
12% of Employee’s contribution Rs. 1200 is saved in EPF Account
12% of Employer’s Contribution Rs. 1200 is divided as (8.33% for EPS i.e. Rs. 833 and 3.67% for EPF i.e. Rs. 367 which is equal to Rs.1200)
Admin charges are divided into (EDLI which is 0.65% i.e. Rs. 65, EPF Admin which is 0.5% i.e. Rs. 50 & EDLI Admin which is 0.01% i.e. Re. 1)
Can I contribute more than 12% towards my PF scheme?
You can contribute more than 12% towards your PF scheme. EPF gives option to employees to increase the contribution amount. It is known as Voluntary Provident Fund (VPF). Here are few points to be noted when it comes to contributing more towards your PF scheme:
- You can contribute up to 100% of your basic salary in EPF account.
- The employer is not bound to match your contribution.
- You will get the tax benefit under section 80C on extra contribution as well.
- The extra contribution becomes the part of your EPF account.
- The rules on loan, transfer and withdrawal of PF amount won’t change.
What are the tax benefits of PF contributions?
The employer PF contribution is exempt from tax, and employee’s contribution is taxable but eligible for deduction under section 80C of Income tax Act. The exemption limit under Section 80C is capped to Rs. 1,50,000.
Can I withdraw my EPF money if I am still working?
Though, EPF withdrawal is not permitted if you are still working. But there are exceptions when an Employee can withdrawal partial amount of his PF.
Here’s list of qualifying conditions, when you can withdraw your Provident Fund amount:
Marriage or education of self, your siblings, or children.
- Should have completed a minimum of seven years of service.
- Maximum amount you can withdraw is 50% of your contribution.
- Can be availed three times during your working life.
- Required to submit the ‘wedding invitation’ or a ‘certified copy of the fee payable’ as proof.
Medical treatment for Self or family (spouse, children, dependent parents)
- Major surgical operations, or for treatment of TB, Leprosy, Paralysis, Cancer, Mental or heart ailments.
- Maximum amount you can withdraw is 6 times your salary
- Required to submit proof of hospitalisation for one month or more with leave certificate for that period from your employer.
Repay a housing loan for a house in the name of self, spouse or owned jointly
- Should have completed at least 10 years of service.
- Maximum amount you can withdraw is 36 times your salary.
Alterations/repairs to an existing home for house in the name of self, spouse or jointly
- Minimum service of five years after the house was built/bought.
- Maximum amount you can withdraw is 12 times your salary.
- Can be availed only once during entire service.
Construction or purchase of house, site or plot for self or spouse or joint ownership
- Should have completed at least five years of service.
- Maximum amount you can withdraw is 36 times your salary. To buy a site or plot, the amount is 24 times your salary.
- Can be availed only once during entire service.
Do I earn any interest on the EPF?
Yes. As decided by EPFO On 19 Dec 2016, the current EPF interest rate for FY 2016-17 is fixed at 8.65%. The rate of interest is not fixed at the beginning of each financial year. This is for the reason that EPFO gives interest according to the earned profit. This also means that the interest rate of EPF is declared for the outgoing/past financial year.
How do I limit employees’ maximum monthly PF contribution to Rs. 1800?
How do I configure employees’ PF contribution to be 12% of their actual Basic and not limited to Rs. 1800 monthly?
What are other charges of Provident Fund? How is it calculated?
How to configure Employer’s PF contribution to be inside/outside of employee’s Gross Salary?
How to configure PF other charges to be inside/outside of employee’s Gross Salary?
Can PF contribution amount (of employee & employer) be over-ridden?
Can an employee opt-out of PF?
In case you are facing trouble with PF configuration & calculation for your employees, write to email@example.com.