EPF
The Employees' Provident Fund (EPF) is a mandatory retirement savings scheme administered by the EPFO for salaried employees in India, where both employee and employer contribute 12 percent of basic salary and dearness allowance each month.
EPF was established under the Employees' Provident Funds and Miscellaneous Provisions Act, 1952, and was administered by the Employees' Provident Fund Organisation (EPFO). It applied mandatorily to establishments with 20 or more employees and to employees drawing a basic salary up to Rs 15,000 per month, though employees earning above this threshold could also voluntarily participate. The scheme served as India's largest social security net for the organised workforce.
The contribution mechanics involved the employee contributing 12 percent of basic salary plus dearness allowance (DA) to the EPF account, with the employer matching the contribution. Of the employer's 12 percent, however, 8.33 percent was diverted to the Employees' Pension Scheme (EPS) and only 3.67 percent went to the EPF corpus. This distinction was important because the EPS balance did not earn interest like EPF and was used to fund a monthly pension upon retirement, while the EPF balance earned declared interest and was available as a lump sum at withdrawal.
The EPF interest rate was declared annually by the EPFO Central Board of Trustees and then ratified by the Ministry of Finance. The rate had varied meaningfully over the decades: it was as high as 12 percent in the late 1980s and gradually declined to 8.15 percent for FY2022–23. The declared rate applied to the entire balance at year end, and interest was credited annually. Employees who contributed above the statutory limit through the Voluntary Provident Fund (VPF) option received the same interest rate as EPF on the additional amount, making VPF one of the most attractive fixed-income options available to salaried employees.
Tax treatment of EPF followed an EEE structure similar to PPF for contributions up to Rs 2.5 lakh per year (Rs 5 lakh for government employees). Contributions above this threshold had interest taxable in the hands of the employee from FY2021–22 onward, a change introduced in the Union Budget 2021 to address high-salaried employees using EPF as a tax arbitrage vehicle. Premature withdrawal before five years of continuous service attracted tax and TDS, while withdrawal after five years remained tax-free.
UAN (Universal Account Number) linkage, introduced in 2014, significantly improved EPF portability. Employees could now transfer their EPF balance when changing jobs through the EPFO member portal without employer intervention, reducing the historical problem of dormant accounts and unclaimed balances. EPFO's move toward Centralised Processing Centres and online claim settlement brought settlement times down from months to days for many claims.