Employee Provident Fund (EPF) is nothing but a savings scheme for employees. Every month a portion of your salary is deducted towards EPF. This fund can be availed when you are unable to work or when you retire. This scheme was introduced by the Government of India in order to inculcate the habit of savings within salaried individuals. EPF is monitored by EPFO (Employees Provident Fund Organisation) and it comes directly under the jurisdiction of the Government. This article will help you get a clear idea of various aspects of EPF.
EPF Applicability
The EPF (Employee Provident Fund) is a retirement scheme managed by the EPFO (Employees Provident Fund Organisation). For any organization or factory having 20 or more employees at any time during the year, registration with the EPFO is mandatory. However, entities with fewer than 20 employees have the option to voluntarily enroll with the EPFO. All employees having wages up to INR 15,000 are required to be enrolled in this scheme.
Employees cannot independently register with the EPFO; only organizations can register their employees.
EPF Withdrawal Eligibility
Retirement: Upon reaching the age of 55, an employee can withdraw the entire EPF amount.
Pre-Retirement: One year before retirement (at 54 years), an employee can withdraw 90% of the EPF funds.
Changed Job: After one month of unemployment, an employee can withdraw 75% of the EPF amount. The remaining balance will be transferred to the new job’s PF account.
Unemployment: After two months of unemployment, an employee can withdraw the entire EPF amount.
How is EPF taxed?
The taxation of EPF withdrawals varies based on specific circumstances, with exemptions granted under certain conditions. The following table explains EPF taxation in all scenarios:
| Scenario | Taxation |
| Employee contribution to PF | A deduction can be claimed up to INR 1.5 Lakhs under section 80C in a year |
| Employer contribution to PF | If the employer’s aggregate contribution towards PF, NPS, & Superannuation Fund exceeds INR 7.5 Lakhs in a year then such excess will be taxable as perquisite under Salary. Any interest/ dividend on such excess contribution will also be taxable. |
| Interest on EPF | If an employee contributes more than INR 2.5 Lakhs in a year then interest on such excess contribution is taxable as other source otherwise it is exempt. TDS is applicable on such interest. This limit will change to INR 5 Lakhs if the employer is not contributing to PF. |
| EPF is withdrawn after 5 years of continuous service | It is exempt from tax. For calculating 5 years, the tenure with the previous employer will also be considered. |
| EPF is withdrawn before the completion of 5 years | 1. Employer contribution and interest on it is fully taxable as salary. 2. Employee contribution is not taxable, provided it was not claimed under 80C as a deduction, if so then it will be taxable as salary. 3. Interest on employee contribution is taxable as other source. Note: TDS @10% under section 192A will be deducted if the amount withdrawn is more than INR 50,000. |
| Transfer of PF from one employer to another | Not taxable |
| EPF is withdrawn from unrecognized PF | It will be taxable irrespective of the period of service |
Note: If EPF is withdrawn before the completion of 5 years of continuous service due to the employee’s ill health, discontinuance of business, or reasons beyond the employee’s control then such withdrawal will be exempt from tax.
What is the current EPF Rate of Interest?
An interest rate is determined by the government and central board of trustees. Any interest earned towards credit standing in one’s PF account is deposited on 1st April of every year. Historically PF has earned interest between 8% to 12%. For FY 2023-24 interest rate is 8.25%. Interest accumulated during employment is tax-free.
Interest Calculation on EPF
Employee’s Contribution to PF: 12% of your Basic Salary + DA (Paid out of your Salary).
The Employee Contribution goes entirely towards the EPF Scheme.
Employer’s Contribution to PF: 12% of your Basic Salary + DA (Paid out of your Employer’s Pocket).
The Employer Contribution is split up as follows:
- 3.67% into EPF
- 8.33% into EPS
Example
Let us take an example to understand these calculations better:
The current per annum rate of interest is 8.25% hence, the monthly rate of interest will come to 0.688% (8.25/12)%
Ms Amrita works at a start-up and earns a monthly salary of INR 20,000. Ms Amrita’s contribution of 12% is directly transferred to her Employee Provident Fund Account, in this case, INR 2,400. The contribution of Amrita’s employer will be divided into two parts: 3.67% towards EPF account, INR 734 (20,000*3.76%) and 8.33% towards EPS, INR 1,666 (20,000*8.33%)
So now the total contribution towards Ms Amrita’s EPF account is INR 3,134 (2,400 + 734)
The monthly interest accrued will be INR 21.56 (INR 3,134*0.688%)
One has to note that the interest earned in a month is credited to the account only by the end of the year.
What are the Different EPF Forms?
An EPF Form is very important and mandatory if an employee wants to carry out any activity in their EPF Account. These forms are used for processes like a nomination, to avail tax deduction, account transfer, avail monthly pension etc.
Below-mentioned is the list of forms serving different purposes:
| Form | Purpose of the Form |
| Form 2 | For Nomination and Declaration |
| Form 5 | For Registration |
| Form 5IF | To avail of a claim under the EDLI Scheme |
| Form 10C | To avail of withdrawal benefits or scheme certification |
| Form 10D | To avail of a monthly pension |
| Form 11 | To transfer the EPF account |
| Form 14 | To purchase an LIC policy |
| Form 15G | To avail of tax-saving benefits on interest |
| Form 19 | For settling EPF |
| Form 20 | For settling EPF in case of death |
| Form 31 | For EPF Withdrawal |
Comparison of Different Tax-Saving Investment Schemes
| Investments | Returns | Lock-In-Period | Risk |
| EPF | 8.25%* | No lock-in period | Low Risk |
| ELSS | 10-12%* | 3 Years | Market Risk |
| FD | 6-7%* | 5 Years | Low Risk |
| NSC | 7-8% | 5 Years | Low Risk |
| NPS | 9-12%* | Till Retirement | Market Risk |
| PPF | 7-8% | 15 Years | Low Risk |
All the above tax savings investment options are tax-deductible up to INR 1,50,000. (*Subject to change)
FAQs
An employee can partially withdraw PF for medical purposes, education, marriage, home loan repayment, purchase/ construction of immovable property, or house renovation.
No, the 5-year calculation period includes the months when you were on permanent rolls but does not include the internship period.
No, it isn’t possible to continue contributing to the Employee Provident Fund once they leave the service. EPF mandates that an employer contributes the same amount as the employee. However, since an individual has left service, they cannot be deemed an employee.
In case your PF account is lost due to a defaulted employer, these are how you could recover it:
– Attachment of Bank Accounts
– Debt Recovery
– Attachment & Sale of properties
– Arrest and Detention of the Employer
– Action under Section 406/409 of Indian Penal Code
– Section 110 of the Criminal Procedure Code
– Prosecution under section 14 of the EPF & MP Act,1952
The Annual P.F. Statement or Member Passbook shows employer payments. If the UAN is active, members can verify monthly contributions via the e-passbook. SMS alerts are also sent for monthly PF account credits.
The process to convert to a VPF account is very simple. All one needs to do is inform the employer regarding opening a VPF account and mention the amount he/she will contribute to the account.
Hey @sushil_verma
There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.
Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.
For eg,
Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.
The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).
Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).
As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.
Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback.
No issues. You’re welcome!
Hey @shindeonkar95
In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.
However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.
Hope, it helps!
Hello,
Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?
There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?
I couldn’t find anything on this. Any help is appreciated.
Hello @Veejayy,
Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.
Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.
These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!
Also, interest earned on these bonds will be taxable.
Hope this helps!
Hi, I need to file my income tax for FY21, I am using Quicko platform for filing, I wanted to confirm if the ELSS investment amount for the FY21 is to be added in the section 80C, since I already the amount of Rs30,072 , should I add my ELSS amount to this existing amount and submit the total
Hey @Sheirsh_Saxena, yes, the investment amount needs to be added under 80C.