All that you need to know about EPF

When you get your salary slip you must have noticed a deduction for EPF. Have you been wondering what is the deduction for? How has it been beneficial for you and all the conditions associated with an EPF account?

This article aims to clear all the air around EPF.

What is EPF?

EPF or Employee Provident Fund is a contribution-based retirement scheme run by the Government of India. It allows an employee to build up his/her retirement kitty easily during the working years.

There are 2 portions to an EPF contribution; one being the employee contribution and the other is the employer contribution. On retirement, the employee gets a lump sum amount that includes the employee and the employer contribution along with interest.

Is EPF Mandatory for All Employees?

All establishments which have more than 20 employees are required to subscribe to the EPF scheme. Certain organizations may be required to subscribe to the scheme with certain relaxations even when the number of employees is less than 20

From the employee’s end, anyone earning a basic salary of less than Rs 15000 is mandatorily required to contribute to EPF. For employees earning a higher basic salary, the contribution is optional.

What is the Mandatory Subscription Amount for EPF?

The mandatory amount fixed for subscription to EPF is 12% of the Basic salary, including Dearness Allowance for both the employee and the employer. That is, both the employee and employer contribute 12% of the employee’s basic salary each month towards EPF.

Where does the EPF Contribution go to?

The entire administration of EPF rests with the Employees’ Public Fund Organisation, a statutory body created by the Govt of India. The contribution made by the employee and the employer is allocated into various different funds to cater to various emergencies that may come up.

There are 3 schemes in operation to which all the contributions go to. They are

  • Employees’ Provident Fund Scheme (EPF) (1952)
  • Employees’ Deposit Linked Insurance Scheme (EDLI) (1976)
  • Employees’ Pension Scheme (EPS) (1995)

The exact allocation of the contribution amount is done as below

Where does the EPF Contribution go to?

  • The entire 12% goes into EPF.

Employer Contribution:

From the employer’s contribution of 12%, the following are the allocations made

  • 3.67% into EPF
  • 8.33% into EPS
  • 0.5% into EDLIS
  • 0.85% for EPF Administrative Charges
  • 0.01% for EDLIS Administrative Charges

Current Rate of Interest Paid on EPF (FY 2020-2021)

The current rate of interest on EPF contribution stands at 8.5%.

The historical EPF interest rates are:

2020-21 8.5%
2019-20 8.5%
2018-19 8.65%
2017-18 8.55%
2016-17 8.65%

What Happens to EPF When you Change Jobs?

Unlike earlier, you do not have to open fresh EPF accounts each time you change jobs/employers. Your existing account can be easily transferred and the new employer can start making contributions into the same account.

When you quit a job, you can withdraw the total cumulative amount in your account. But, you should keep in mind that if the balance is withdrawn before the completion of 5 years, then the same is added to your income for that year and taxed at the respective slab.

This is a frequently asked question. Almost every employee has this thought

  • “Do I have to wait till retirement to get my EPF funds”?
  • What if I am in need of some funds before my retirement?

Both full and partial withdrawal of EPF is possible depending upon various factors.

The conditions for which Partial withdrawal of EPF are allowed are:

Sl. No. Reasons allowed for EPF withdrawal Limit for withdrawal No. of years of service required for withdrawal
1 Medical treatment for self or family Six times the monthly basic salary or the total employee’s share plus interest, whichever is lower No criteria
2 Marriage of Self, Children or Siblings Up to 50% of employee’s share of contribution to EPF with interest 7 years
3 Post matriculation studies of Children Up to 50% of employee’s share of contribution to EPF with interest 7 years
4 Purchase of a house/flat or construction of a house or purchase of a site for construction

For land – 24 months of monthly basic salary plus dearness allowance or a total of employee and employer contribution with interest whichever is lower

For purchase of a house – Maximum of 36 times of monthly basic salary plus dearness allowance or a total of employee and employer share whichever is lower Above limits are restricted to the total cost

5 years
5 Repayment of outstanding principal and interest of a loan Up to 36 times of monthly basic salary plus dearness allowance Or Total corpus consisting of employer and employee’s contribution with interest. or Total outstanding principal and interest on the loan The least of the above three 10 years
6 House renovation of self-owned or of property jointly owned with a spouse Least of the below: Up to 12 times the monthly wages and dearness allowance, or Employees contribution with interest, or Total cost 5 years from completion of the house. The withdrawal is again allowed after 10 years of the first withdrawal.
7 Partial withdrawal before retirement Up to 90% of accumulated balance with interest After reaching the age of and withdrawal of 54 or and within one year of retirement/superannuation

Special Advances are allowed in the following cases too

In case of lockout or closure of establishment for more than 15 days, where the employees are rendered unemployed without compensation or when the employee has not received wages for 2 months for reasons other than strike - Entire amount of employee contribution can be withdrawn.

In case the establishment is closed for more than 6 months and the employees continue to be unemployed without compensation, - Up to 100% share of employer contribution with interest can be withdrawn.

What is the Procedure to withdraw your EPF Balance?

Withdrawal of EPF balance can be done through an offline or an online process. But to apply for an online withdrawal, there is an upper limit for withdrawal.

Taxability of EPF

EPF is one of those investments which follows a EEE model, which means the investment, the interest earned and the redemption or withdrawal of the amount are all exempt from Income Tax. The deduction for the contribution to EPF is available under Section 80C of the Income Tax Act.

Latest Updates: Changes in EPF Rules due to lockdown for COVID 19

As a measure of providing relief to millions of people affected by the lockdown caused due to Covid-19, the Government has allowed individuals to withdraw up to 75% of the balance in EPF account irrespective of the number of years of service put in without incurring any Income Tax liability.