Planning For It! - All About Employee Provident fund (EPF)

image Every month your salary slip features a deduction towards your Provident Fund (also known as Employees Provident Fund or EPF in short). How often have you wondered if such a contribution is actually beneficial to you and if it is actually needed? What if you quit or switch over jobs? Here’s explaining the benefits EPF carries and why one should pay attention to this contribution.


The Statutory Requirement

The EPF is maintained solely by the Employees Provident Fund Organisation of India. As a statutory rule, any company having more than 20 employees, have to register with the EPFO.


Ø Contribution to EPF

Employees’ contribution to the EPF comprises of 12% of the Basic+ DA+ the cash value of food allowances. An equal amount of 12% is contributed by the employer too, to the fund. Some organisations offer a variant to the traditional EPF, known as the Voluntary Provident Fund (VPF), wherein a voluntary contribution to PF over and above the mandate 12% could be made. In such a case, the employer is not mandated to match this level and may contribute only up to the maximum amount of 12%.


Ø Is contribution to the EPF mandatory?

Well, for those who have a basic salary of up to Rs 6500, contributing to the EPF is mandatory. Contributions are voluntary for those whose basic salary exceeds Rs. 6500. However it is strongly recommended to make such contributions to avail of the various benefits an EPF has in store.


Why Should One Contribute to the EPF?

The contributions to the EPF come with a galore of benefits. Here is a peek into what it has in store, and why one should seldom ignore it.


a) Safety of Returns

The EPF is the safest debt instrument to invest in. Backed by the government, it guarantees safety of principal as well as the interest earned, making it suitable for long term financial goals. It also brings about an automatic discipline in investing.


b) Loan Options on EPF

Most companies offer you a loan against EPF as a security at reasonable rates of interest. So the higher your PF balance, the more is your eligibility for such loans. In times of a crisis, if you so require some money, your EPF could come to your rescue.


c) Tax Treatment on EPF

The contributions you make towards your provident fund gets you a tax benefit under section 80C, up to a maximum limit of Rs.1, 00,000. Also, the maturity proceeds are tax free, if contributions to the fund have been for more than 5 years.


d) Interest Earned on EPF

The rate of interest earned on a PF account is fixed every year during the months of March or April by the Government. The EPF currently for the financial year 2010-2011 carries an interest rate of 9.5%. This interest rate is guaranteed and risk free.


e) Withdrawal facility in EPF

The complete amount from your PF could be withdrawn on Retirement at the age of 55 years or due to early retirement on account of some disability etc. Partial withdrawal of money from the fund is permitted occasionally to meet expenses of marriage, medical costs or for building or purchase of a home.


For other cases such as

Ø Shifting of Jobs

At such times, the PF balance could be transferred from one employer to another. The existing balance would continue to stay. With fresh contributions made by the new employer.


Ø Quitting of Job

PF could be withdrawn, if you quit your job and provide a declaration that you do not intend to work for the next six month.


Ø EPF and The Power Of Compounding

The EPF is a perfect tool to build a substantial retirement corpus for investors. It works on the basic principal of compounding, giving a high effective net yield on your investment. Compounding is the system where the interest earned on the principal is accumulated back into the investment to give more earnings. The more the number of times compounding takes place, more the growth in money. The prudence thus lies in letting you EPF investment grow so that it serves as a perfect social security and monetary support on retirement to lead a comfortable life ahead.



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Published Mar 10 2011

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Kiran said:

How to transfer EPF account from old company to New company.

My first PF account @ mumbai, currently im working @ Hyderabad.

Our colleagues are telling to withdraw the amount, as transfer is not guarantee in-time & no information will be available.

Please suggest. and I would like to know is there any advantages/disadvantages with transfer/withdraw of epf

April 7, 2011 1:12 AM

Rajat Gupta said:

My employer has more than twenty employee but we dont have any EPF Option. Is it manadatory for employer to give us benefits of EPF?

April 7, 2011 1:32 AM

Srinivas said:


Transferring is good idea I have transferred and they tell the amount as well company will also tell that the amount is transferred or not .And it will alway add to your amount and interest rate will be compounded thats the way it works so dont remove until you are 55 or when you plan to retire

April 7, 2011 2:59 AM

vijay said:

it is better to transfe the amount..

if u withdraw it is the taxable income that too u will get after 4-6 months

u ask u r current employer(HR) regarding the forms to be filled and fill it n submit to HR..they will take care....

i and many of my friends did the same

April 8, 2011 9:27 AM

Deepinder said:

My company does not have VPF scheme, isn't manadatory to for a company to have this feature.

April 20, 2011 6:41 AM

amit3880 said:

Great and simple Explaination..!

June 23, 2011 6:13 AM

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