What is PF (Employees' Provident Fund)?
The Employees' Provident Fund (EPF) is a mandatory retirement savings scheme under the Employees' Provident Funds and Miscellaneous Provisions Act 1952, administered by the Employees' Provident Fund Organisation (EPFO). Applicable to companies with 20 or more employees. Both employer and employee contribute 12% of basic salary + dearness allowance. The employer's 12% is split: 8.33% to Employee Pension Scheme (EPS, capped at INR 1,250/month on INR 15,000 ceiling) and 3.67% to EPF.
Current Rate (FY 2025-26 (AY 2026-27))
Employee contribution: 12% of basic salary + DA. Employer contribution: 12% of basic salary + DA (split: 8.33% EPS + 3.67% EPF). Additional employer contribution: 0.5% to EDLI (employee deposit linked insurance). Current EPF interest rate: 8.25% per annum (FY 2023-24, pending declaration for FY 2024-25).
Example
An employee's basic salary is INR 30,000/month. Employee PF contribution = INR 3,600 (12%). Employer contribution = INR 3,600 (12%): INR 1,250 to EPS, INR 2,350 to EPF. Net take-home is reduced by INR 3,600; employer's total cost is INR 33,600 + INR 3,600 = INR 37,200 (before other benefits).
How PF (Employees' Provident Fund) works in India
The EPF scheme is one of the oldest and most pervasive employee benefit obligations for Indian employers. EPFO administers three schemes: EPF (provident fund), EPS (pension), and EDLI (life insurance).
**Applicability threshold**
- Mandatory: establishments with 20 or more employees - Voluntary: smaller establishments can register voluntarily - Once registered, the obligation continues even if headcount falls below 20 - All employees earning up to INR 15,000/month basic + DA are mandatorily covered. Employees above INR 15,000 can optionally join.
**Contribution structure**
| Component | Employee | Employer | |-----------|----------|----------| | EPF | 12% of basic+DA | 3.67% of basic+DA | | EPS | Nil | 8.33% of basic+DA (capped at INR 1,250/month) | | EDLI | Nil | 0.5% of basic+DA (capped at INR 75/month) | | Admin charge | Nil | 0.50% of basic+DA | | **Total employer cost** | | **~13%** |
**Filing and deposit deadlines**
- Monthly ECR (Electronic Challan cum Return) filed on the EPFO Unified Portal by the 15th of the following month - Payment deposited by the same 15th day deadline
**Employee benefits**
- Withdraw EPF balance on retirement (age 58) or after unemployment of 2+ months - Partial withdrawal permitted for medical, education, house purchase, renovation - EPS provides a pension of minimum INR 1,000/month on retirement (formula: (pensionable salary x service years) / 70) - EDLI provides life insurance benefit up to INR 7 lakh on death in service
**UAN (Universal Account Number)**
Every employee is issued a UAN — a unique 12-digit number that stays the same across employers throughout a career. The employer must activate the UAN for each new employee and link it to Aadhaar. This enables seamless PF transfer when changing jobs.
**Tax treatment**
- Employee contribution: deductible under Section 80C (up to INR 1.5 lakh) - Interest on EPF: tax-free up to INR 2.5 lakh contribution/year; taxable above that - Employer contribution: tax-free up to 12% of salary - Withdrawal: tax-free after 5 years of continuous service
Related terms
Professional Tax is a state-level tax on professions, trades, and employment levied by most Indian states and Union Territories (exceptions: Arunachal Pradesh, Delhi, Goa, Rajasthan, Uttarakhand, Jammu and Kashmir). It is deducted by employers from employee salaries and remitted to the state government. The maximum rate under the Constitution is INR 2,500 per year per employee. Rates vary by state and income slab.
TDS is a mechanism under the Income Tax Act 1961 where the payer deducts tax at the time of making certain payments (salary, rent, professional fees, interest, contractor payments) and deposits it with the government on behalf of the payee. The deductor must have a TAN (Tax Deduction and Collection Account Number). TDS rates range from 1% to 30% depending on the payment type.
India levies Corporate Income Tax on the net profits of companies registered under the Companies Act 2013. The headline rate for domestic companies is 30%, but the effective rate for most companies is 22% under the concessional Section 115BAA regime (plus 10% surcharge and 4% cess = ~25.17%). New manufacturing companies incorporated after 1 October 2019 and commencing production before 31 March 2024 can opt for 15% under Section 115BAB (plus surcharge and cess = ~17.01%).
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