EPF (Employees' Provident Fund)

What it means

The Employees’ Provident Fund (EPF) is a compulsory retirement savings scheme run by the EPFO. Every month the employee and the employer each contribute 12% of the employee’s basic pay plus dearness allowance (DA). The money earns interest declared each year by the EPFO and can be withdrawn at retirement, or partly earlier for specified needs such as housing, illness or education.

How it works

EPF applies to establishments with 20 or more employees. It is mandatory for employees whose basic pay plus DA is up to ₹15,000 a month; employees above this can be covered if the employer and employee agree.

• Employee share: 12% of basic plus DA, deducted from salary, all of it goes to the EPF account.

• Employer share: 12% of basic plus DA, of which 8.33% (calculated on wages up to ₹15,000, so a maximum of ₹1,250 a month) goes to the Employees’ Pension Scheme (EPS), and the balance goes to EPF.

• Other employer costs: EDLI insurance of 0.5% on wages up to ₹15,000, and administrative charges of 0.5%.

• Due date: contributions are paid through the ECR on the EPFO portal by the 15th of the following month.

Example

Priya’s basic pay plus DA is ₹25,000 a month and she is covered on her full wage.

Employee share: 12% x ₹25,000 = ₹3,000 (deducted from her salary)

Employer share: 12% x ₹25,000 = ₹3,000, split as:

EPS: 8.33% x ₹15,000 = ₹1,250

EPF: ₹3,000 - ₹1,250 = ₹1,750

So each month ₹4,750 (₹3,000 + ₹1,750) goes into her EPF account and ₹1,250 into her pension account. The employer also pays EDLI of ₹75 (0.5% of ₹15,000) and admin charges of ₹125 (0.5% of ₹25,000), so the employer’s total cost is ₹3,200 a month.

Key points to remember

• If the employer deducts the employee share but deposits it late, the employer loses the tax deduction for that amount and pays interest and damages to the EPFO.

• Interest on the employee’s own contribution above ₹2,50,000 a year is taxable.

• Withdrawal before 5 years of continuous service is generally taxable, with TDS if the amount exceeds ₹50,000.

• Link Aadhaar and bank details to the UAN so transfers and withdrawals are not stuck.

• Under the old regime, the employee share counts within the ₹1,50,000 limit of Section 80C.