The Employee Provident Fund (EPF) is one of the most significant social security schemes in India, designed to provide financial stability to employees after retirement. It was first introduced through the Employees’ Provident Funds Ordinance in 1951 and later replaced by the Employees’ Provident Funds Act, 1952. Under this Act, the Employees’ Provident Funds Scheme, 1952, came into effect, ensuring a structured system of retirement savings through joint contributions from both employees and employers.
Managed by the Employees’ Provident Fund Organisation (EPFO), the scheme continues to be a vital pillar of employee welfare in India. Today, EPF is not just a savings plan but also a safety net, offering benefits in retirement, emergencies, or unexpected circumstances.
With that foundation, let’s dive into the blog topic and understand how EPF works, its benefits, and why it remains essential for every working professional in India.
The employee provident fund (EPF) is a retirement savings scheme in India where both employers and employees contribute a fixed percentage of the employee’s basic salary and dearness allowance. These contributions are pooled into the employee’s provident fund account, which earns interest declared annually by the government. The accumulated corpus can be withdrawn at retirement, during periods of unemployment, or for specific life events such as medical emergencies, higher education, or purchasing a home.
The Employee Provident Fund Scheme, 1952, was established under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952. The objective of the scheme is to ensure long-term financial security and social protection for employees and their dependents. It is mandatory for organizations with 20 or more employees and is applicable to both Indian and international workers employed in eligible establishments.
The EPF is administered by the Employees’ Provident Fund Organisation (EPFO), which operates under the Ministry of Labour and Employment. In addition to EPF, the EPFO also manages the Employees’ Pension Scheme (EPS) and the Employees’ Deposit Linked Insurance Scheme (EDLI). Each employee is allotted a Universal Account Number (UAN), which ensures that their EPF account is portable across jobs, making it easier to track and manage contributions throughout their career.
Benefits of employee provident fund
The employee provident fund (EPF) offers multiple advantages for employees, ensuring financial security, tax savings, and social protection throughout their career and beyond. Here are the key benefits of employee provident fund in detail:
EPF builds a long-term financial corpus that employees can rely on after retirement. With consistent contributions from both employer and employee, the fund grows steadily over time, ensuring a financially stable post-retirement life.
A major advantage of EPF is that the employer contributes equally alongside the employee (currently 12% of basic salary and dearness allowance), effectively doubling the savings without extra effort from the employee’s side.
The EPF balance earns an annual interest declared by the government. For FY 2024–25, the EPF interest rate is 8.25%, making it one of the safest and most reliable investment avenues with guaranteed returns.
Employee provident fund offers attractive tax exemptions. Contributions qualify for deduction under Section 80C of the Income Tax Act. Additionally, the interest earned and withdrawals after five years of continuous service are tax-free, making EPF a highly tax-efficient savings tool.
Employees can make partial withdrawals from their EPF account for specific purposes such as medical emergencies, higher education, marriage expenses, or purchasing a home. This makes EPF a flexible savings instrument that supports employees during key life events.
Employees can avail loans against their EPF balance, eliminating the need for high-interest personal loans. This facility provides quick financial support without affecting long-term retirement savings.
Through the Employees’ Deposit Linked Insurance (EDLI) scheme, EPF members automatically get life insurance coverage. This ensures financial support to the employee’s family in case of the employee’s untimely demise.
The Employees’ Pension Scheme (EPS), linked to EPF, provides pension benefits to employees after retirement. This ensures a steady monthly income post-retirement, reducing financial stress during old age.
With the introduction of the Universal Account Number (UAN), EPF accounts are easily transferable when employees switch jobs. This ensures continuity of savings and simplifies tracking of contributions.
EPF provides a safety net during periods of unemployment. Employees who are unemployed for more than one month can withdraw up to 75% of their EPF balance, helping them manage expenses until they find a new job.
The employee provident fund (EPF) is a mandatory retirement savings scheme designed to provide long-term financial security for employees. Its applicability is defined by specific rules under the EPF Act. Here’s a detailed breakdown:
The EPF works on a shared contribution model where both employees and employers contribute a percentage of salary every month.
For smaller organizations (with fewer than 20 employees), the contribution rate is reduced to 10% for both employer and employee.
This combined contribution steadily builds an employee’s retirement corpus, while also offering pension benefits and insurance coverage.
The Universal Account Number (UAN) is a unique 12-digit identifier assigned to every employee covered under the Employee Provident Fund Act. It remains the same throughout a professional’s career, irrespective of job changes. All provident fund accounts are linked to this UAN, making it easier to transfer funds, track contributions, and check balances.
To use UAN for employee provident fund management, employees need to activate and link it through the EPFO portal. The process is as follows:
Keeping KYC information updated ensures seamless withdrawals and reduces chances of delays or TDS deductions. Employees can update details by:
Employees can check their provident fund balance using any of the following four methods:
Withdrawals from the employee provident fund are regulated under specific conditions:
Human resources teams play a critical role in employee provident fund compliance and management. Their responsibilities include:
The employee provident fund is both a statutory requirement and a crucial employee benefit that promotes long-term financial security. For HR professionals, ensuring compliance with the Employee Provident Fund Act while assisting employees with UAN activation, EPF login, withdrawals, and KYC updates is essential.
By effectively managing EPF contributions and educating employees, HRs can build trust, reduce compliance risks, and support overall employee well-being.
Employees earning less than ₹15,000/month can voluntarily opt-in, but once enrolled, opting out is not allowed unless at the start of employment and before the first contribution is made.
For FY 2024–25, the government has declared an EPF interest rate of 8.25%, credited annually to the employee’s provident fund account.
Online EPF withdrawals usually take 3–10 working days, provided the UAN is linked with Aadhaar, PAN, and bank account details, and KYC is verified by the employer.
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