All of us at some point in our career have wondered, why does our PF have to be deducted from the salary? Why can't I receive my entire salary? How does this PF thing even work? If you did ask these questions then this article might help you answer some if not all of these answers.

Employees' Provident fund or EPF is a retirement scheme introduced to salaried employees, EPF is a part of the Employees' Provident Fund and Miscellaneous Provision Act 1952. All employees who are eligible for EPF make a certain percent contribution from their salary to employees' provident fund in their respective account each month and equal percent contribution is made by their employer as well.

This amount is collected with EPFO and can be withdrawn by the employee at the time of retirement.

Employees' Provident Fund, what?

Like said earlier, Employees' provident fund is a retirement scheme introduced to benefit salaried employees by the government of India. This scheme covers every organization in India that has 20 or more individuals employed, this scheme also covers certain establishment that might not have 20 or more employees but fulfill certain other conditions.

Who is eligible for Employees' Provident Fund and how is the contribution made?

Employees' provident fund is eligible for all employees whose Basic + DA (Dearness Allowance) + RA (Retaining Allowance) is less than equal to 15000 per month.

All employees earning 15000 or lesser as basic + DA + RA in an organization with more than 20 employees have to contribute 12% of their basic + DA + RA as their EPF contribution. The same amount is contributed by their employers, however, employers 12% contribution is divided into two parts

a) Employees' Pension Scheme 8.33%

b) Employees' Provident Fund 3.67%

Exceptions to EPF Contribution: 

1. Employees earning more than 15000 per month as their Basic + DA + RA .are not eligible for EPF, however, they can contribute to EPF with permission by assistant PF commissioner if their employers don't object.
2. Government contributes employers 12% for Freshers (employees who have recently started working) for the first three years.
3. Organizations with lesser than 20 employees or establishments meeting certain other condition as per EPFO rule have to make a contribution of 10% by both employees and employers.
4. To increase women empowerment, the government of India in the budget of 2018 declared, to decrease women employees' provident fund contribution to 8% instead of 12% for the first 3 years.
5. Employees who want to contribute more than 12% which is mandatory contribution are allowed to do so, however, their employers are not liable to contribute more than 12%. This type of contribution is called Voluntary Provident Fund and it is accounted separately. Also, tax-free interest is earned on VPF.

How to Withdrawal EPF?

As stated time and time again EPF is a retirement scheme so naturally one can withdraw total EPF amount after retirement or after 55 years of age. However, one is eligible to withdraw up to 90% of accumulated balance + interest after the age of 54, this is called partial withdrawal.

Employees who have moved out of their organization before reaching their retirement can withdraw EPF if they have stayed unemployed for 60 or more days. There are other exceptions as well to when one can withdraw a part of their PF like, wedding, education, etc.

For withdrawing EPF one has to use UAN (Universal Account Number). Employees have to activate their EPF account, fill KYC details - adahar card number and bank details. These details are verified by employers and then signed with a digital signature. One can withdraw their EPF only once these formalities are done. Check the EPFO site to know more.

How is Interest on EPF Calculated?

Compound interest at the rate of 8.65% (decided by the government and central board of trustees) is paid on employees contribution fund. Which means each year at the start of the financial year your interested is added. It is calculated in the following way.

Opening balance (Your contribution + employers contribution) + total monthly contribution (sum of contribution made by you) + interest = your new opening balance.

To sum it up Employees' Provident Fund is a government scheme for benefiting salaried employees after retirement. Employees are often ignorant about these benefits, many employees blindly contribute to this scheme without understanding its structure. Human resource department often has to answer employees queries related to EPF. Every organization HR should make it a point to explain EPF while explaining offer letter to employees so that there is no confusion later on.