Indialends, 20 Sep 2025

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Things you should know before making investment in EPF

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Employees' provident fund is a superannuation benefit that is provided to the employees after they get retired. In this scheme, an equal contribution of 12% is made by both i.e. the employee as well as the employer. The fund is managed by the Employees’ Provident Fund Organization (EPFO). However, before planning to invest your money in this scheme, you should be aware of some of the important things given here.

 Applicability of the EPF Act

• The EPF Act applies to organizations that employ a minimum of 20 employees.
• Apart from the employees working in India, the EPF Act also cover International Workers (IW) within its ambit.
• The provident fund that is deducted from your salary throughout the year can be declared under the Income Tax Act where one can save their taxes.
• The EPFO management decides the interest rate paid to employees every year which is ratified by the Ministry of Finance. Currently, the rates for the financial year 2019-20 is 8.50%.
• The act is applicable for the whole of India except the state of Jammu and Kashmir.

 EPF calculation

The interest on the Employees' Provident Fund (EPF) is calculated on the contributions made by the employee as well as the employer. Contributions made by the employee and the employer equals 12% that includes employee pension scheme and employee deposit linked insurance scheme of his/her basic pay plus dearness allowance (DA).

For an employee who earns up to Rs. 15,000 as basic plus Dearness Allowance (DA) component, 12% of this amount is deducted as his/her share towards EPF contribution. The employer too will contribute the same amount; however, 8.33% of the basic plus DA component is credited to the EPS (Employees’ Pension Scheme) Account while the rest is credited to the employee’s EPF account.

If the basic plus dearness allowance component exceeds Rs. 15,000, the employee can contribute a higher amount without any statutory obligation for the employer to make the same contribution. This is known as voluntary provident fund contribution or VPF.

In case the employer contributes a higher amount, the employer’s contribution towards EPS will remain capped at 8.33% of Rs. 15,000 and the excess amount will be credited to EPF Account.

Let us understand it with an example: Suppose an employee named Rajesh earns Rs. 30,000 as basic salary plus DA component and both he and his employer decide to contribute 12% of Rs. 30,000. In this case, the employer’s contribution to EPS would be capped at Rs. 1,250 and hence, the employer’s contribution to the EPF account would arrive at Rs. 2,350.

EPF benefits

The members can either withdraw partially or completely from their EPF accounts under certain circumstances and for certain defined life events such as marriage, medical purpose, education, home construction or improvement, etc.

The EPF accounts can be easily transferred from one company to the other while changing your job.