PensionBox Blogs
Employee Provident Fund
Remy Sharp
Pranat Modi
May 02, 2022

Employee Provident Fund is a scheme established by the government of India and set up by the EPFO (Employee Provident Fund Organisation) under the guidance of the Ministry of Labour and Employment. The goal of setting up this scheme was to promote a sense of savings among the employees and help them build an optimised retirement corpus. Any establishment with more than 20 employees needs to register itself under the EPFO Act 1952. Only salaried employees registered under the EPF act can invest in EPF. This scheme enables both the employer and the employees to contribute 12% of the employee’s basic salary and dearness allowance towards EPF.

Is Investing under EPF safe?

EPF is one of the safest modes of Investments available due to its statutory backing. The funds collected in the EPF scheme are managed by the EPFO. They invest 15% of the money collected in equity which can be looked at as diversification. For the current financial year, the EPF rate has been fixed at 8.1% compared to 8.5% last year. This rate is decided by the Union government in consultation with the Central Trustee Board. The contributions are made every month, but the interest calculations take place every year end.

How can we make Withdrawals under the EPF scheme?

The EPF retirement age is 58. One can easily withdraw most of the EPF corpus at this age. A portion of this corpus is retained and used up for the Employee’s Pension Scheme that's paid to you in annuities and the same is taxable. One can also withdraw 75% of their EPF corpus if they have been unemployed for a period of 1 month. If this extends further to 2 months, one can withdraw the entire EPF corpus. It's important to note that if you withdraw your EPF corpus within 5 years of account opening, the withdrawal will be taxable. Partial withdrawals are also allowed under this scheme.

What are the taxation benefits available under EPF?

Investment in EPF qualifies for tax deduction under Section 80 C of Income Tax. Interest earned on EPF is also tax-exempt. Withdrawals are also tax-free unless made 5 years from opening the EPF account. If the total withdrawal amount within 5 years from the date of opening the EPF account is more than Rs 50,000, TDS is also deducted.

Are there any drawbacks to the EPF scheme?

EPF is available only to salaried employees, hence it's not an option available to self-employed individuals. The option available to them is the PPF account. If you move jobs from large to small companies or become self-employed, you cannot contribute to the EPF. In such a case, the EPF will stop earning interest after 3 years from your exit from the EPF-registered employer. Your money will sit idle in the EPF account. Withdrawals from 5 years from the date of opening are all taxable. They offer much lower returns compared to long term schemes like the NPS.

How does PensionBox help you with your EPF account?

PensionBox helps you to track how your funds allocated towards EPF are performing. Through our app, you can easily track your retirement savings and figure out how much you need to save to reach your dream retirement goal.