How Provident Fund works in India

The provident fund is one of many retirement savings schemes provided by the Government of India. It’s a bit different in the sense that it is mandatory for every working person in the country. Each employee in the country contributes a portion of their monthly salary towards building this corpus which is then accessible post-retirement or unemployment.

An EPF (Employee Provident Fund) starts when you start employment with a company. A person earning more than Rs. 15,000 monthly is required to be part of the EPF. Also, every company that has more than 20 employees is also supposed to enroll in EPF.

Unique Identification

Each employee is given a UAN (Universal Account Number) by the EPF, which is a unique identification number across companies. This means your UAN doesn’t change as you switch between companies. Usually during onboarding, you will be asked for the UAN. Once set up, you will be able to see the details of the new employer in the portal.

Contributions

Each month, the employee and employer make equal contributions to the EPF account. This is usually 12% each of Rs. 15,000. The employer part is further divided into 3.67% into EPF and 8.33% into EPS (Employee Pension Scheme). So on a monthly basis,

12% of 15,000 = Rs. 1800 by the employee
12% of 15,000 = Rs. 1800 by employer (usually deducted from your CTC itself)
The Employer contribution of Rs. 1800 is further divided into Rs. 550 (3.67% EPF) and Rs. 1250 (8.33% EPS).

So in total, you will be able to see a monthly contribution of Rs. 2350 into your EPF passbook and Rs. 1250 into your EPS passbook. The passbook can be accessed at https://passbook.epfindia.gov.in/MemberPassBook/login. The mobile number in your Aadhaar is also sent a message when the monthly contribution is made by the employer.

Balance Check

You can check the balance by giving a missed call to 9966044425 from your registered mobile number or download the UMANG app at https://play.google.com/store/apps/details?id=in.gov.umang.negd.g2c&hl=en_IN&gl=US

Withdrawing Money

You can withdraw from EPF post your retirement or if you have become unemployed. If you are unemployed for 1 month, you can withdraw 75% of the current balance. If you are unemployed for more than 2 months, you get to withdraw the full amount. The withdrawals are tax-free (No TDS) if withdrawn after 5 years. Before that, a TDS of 10% is applied if the amount withdrawn is more than Rs. 50,000. Withdrawals can be done online by visiting the EPF portal.

EPF is a really nice way to build retirement savings as it is backed by the government and has a good interest rate that beats inflation. The current interest rate for 2023 stands at 8.15%.