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What is Employee Provident Fund or EPF?

Updated on October 17, 2020 , 10429 views

Employee Provident Fund, commonly known as PF (Provident Fund), is a retirement benefits scheme that available for all salaried employees. Under an Employee Provident Fund, employees, as well as the employer contribute a certain amount from their basic salary (approx. 12%) in an EPF account. The entire 12% of your basic salary is invested in an Employee Provident Fund. Out of 12% of the basic salary, 3.67% is invested in an Employee Provident Fund or EPF and the remaining 8.33% is diverted to your EPS or Employee’s Pension Scheme. Therefore, Employee Provident Fund is one of the best savings platforms that enable employees to save a part of their salary every month and use it after retirement. Nowadays, one can also check PF account balance and withdraw PF online.

Employee Provident Fund OR EPF: Principles to Follow

To make your EPF investment a beneficial investment you need to follow certain principles. We have listed some of the basic principles below. Have a look!

Make a Regular EPF Payment: Never Opt-Out

  • The core of EPF scheme is its fixed monthly contribution. The fund is formulated by the regular monthly investments made by the employers and employees. In certain organisations, the employees are given an option to opt-out of contributing to Employee Provident Fund, though the employer’s contribution is mandatory.

  • Further, there is also a Voluntary Employee Provident Fund option, which allows the employees to invest more than 12% of their basic salary in this scheme to attain a better retirement corpus while the employer’s contribution remains the same i.e. 12%.

Wait until Retirement for a Better Retirement Planning

  • One of the primary objectives of this scheme is to provide financial security to people post-retirement. If the investment corpus is allowed to grow properly, Employee Provident fund can provide high benefits in long run.

  • The EPF tax rules are strict, so when invested till retirement, they provide good returns. Let’s consider an example to understand it better. If an employee has a basic salary of INR 15,000 and is retiring in the next 30 years, he/she can attain a return of INR 1.72 crore at the time of retirement. The Power of Compounding of EPF plays a major role in attaining such high returns.

  • If properly utilised, Employee Provident Fund can solve the problem of fund requirement post-retirement.

Do not Rely on your PF Balance: Know Tax on PF Withdrawal

  • Some of the employees rely on PF balance to fulfil their short-term goals. Some also treat it as an emergency fund. If you are doing it as well, it is suggested to stop doing that immediately.

  • Though there is an option to avail a loan on your EPF balance, one must avoid taking that option.

  • Also, there are additional tax deductions on PF withdrawal. So, we must keep the PF amount safe for our retirement only.

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Know the EPF Rules: Continue the Same PF Account During Job Change

  • Another important thing to know for your EPF account is that the employees have an option of continuing the same PF account. The PF account balance accumulated in the previous organisation’s account can be transferred to the account of the new organisation. So, you do not have to manage several accounts. The salary deductions from all the organisations get accumulated in a single account.

  • Also, if the PF amount is not transferred within 3 years of leaving the organisations, it becomes difficult procedure to follow. So, it is important to make sure that the accounts are clubbed together with a new account for a proper capital appreciation.

Get Your Universal PF Account Number

  • Lastly, to avoid the hassle of transferring and managing multiple accounts of your previous organisations, it is advised to get your UAN (Unique Account Number). Now, you must be thinking what is UAN?

  • UAN or Universal account number is a number provided by the EPFO (Employee’s Employee Provident Fund Organization) that helps manage multiple accounts through a single portal. So, to ensure proper management of an EPF account, it is suggested to get a UAN number.


Understanding the differences between EPF and PPF can help you pick the best.

Here's a quick look-

Parameter EPF (Employees Provident Fund) PPF (Public Provident Fund)
Interest Rate 8.65% 7.60%
Tax Benefits Liable for deductions under section 80C Liable for deductions under section 80C
Period of Investing Up to retirement 15 years
Loan Availability Partial withdrawal available 50% withdrawal after 6 years
Employers Contribution (Basic + DA) 12% NA
Employees Contribution (Basic + DA) 12% NA
Taxation on Maturity Tax Free Tax Free

Retirement planning is essential for fulfilling your retirement goals. So, build your Employee Provident Fund or EPF corpus well to make your retirement a happy retirement. Invest well for a better future!

All efforts have been made to ensure the information provided here is accurate. However, no guarantees are made regarding correctness of data. Please verify with scheme information document before making any investment.
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