How EPF Works — Complete Guide
EPF Contribution Breakdown
An employee contributes 12% of Basic Salary + DA to EPF. The employer also contributes 12%, but only 3.67% goes to EPF — the remaining 8.33% goes to the Employee Pension Scheme (EPS). So the total monthly PF account addition is 15.67% of Basic+DA.
Monthly PF = (Employee 12% + Employer 3.67%) × Basic Salary
EPF Tax Benefits
Employee contributions up to ₹1.5 lakh qualify for deduction under Section 80C. Interest earned is tax-free up to ₹2.5 lakh annual contribution (₹5 lakh for govt employees). Withdrawals after 5 years of service are tax-free. This makes EPF one of the best EEE (Exempt-Exempt-Exempt) investment instruments.
EPF vs VPF vs PPF
EPF: Mandatory for employees of firms with 20+ employees. 8.25% interest. Tax-free. VPF (Voluntary PF): Same as EPF but you can contribute more than 12%. Excellent option. PPF (Public PF): Open to everyone including self-employed. 7.1% interest (FY 2024). 15-year lock-in, extendable in 5-year blocks.
Frequently Asked Questions
Can I withdraw my PF before retirement?
Yes. You can make partial withdrawals for specific purposes like home purchase, medical emergencies, education, or wedding. Full withdrawal is allowed after 2 months of unemployment. Withdrawals before 5 years of continuous service attract TDS.
What is the maximum EPF contribution?
There is no maximum limit on EPF contributions. The mandatory contribution is 12% of Basic+DA. You can voluntarily contribute more through VPF (Voluntary Provident Fund) at the same 8.25% interest rate, though the employer doesn't match the extra amount.
How to check my EPF balance?
Check your EPF balance through the EPFO member portal (passbook.epfindia.gov.in), the UMANG app, by sending SMS "EPFOHO UAN ENG" to 7738299899, or by giving a missed call to 011-22901406 from your registered mobile number.
Is EPF interest taxable?
EPF interest is tax-free on contributions up to ₹2.5 lakh per year (₹5 lakh for government employees). Interest earned on contributions above this threshold is taxable as income from other sources. This change was introduced in Budget 2021.