Ever wondered how much of your salary goes into your EPF account and how it benefits you?
The Employees’ Provident Fund (EPF) is a mandatory savings scheme for salaried employees under the Employees’ Provident Fund Organisation (EPFO). Both employees and employers contribute a fixed percentage of the salary each month, ensuring financial security after retirement.
This blog explains EPF contribution percentages, employer and employee shares, tax benefits, and recent updates.
Understanding EPF Contributions: Who Pays What?
Employee Contribution
Employees contribute 12% of their Basic Salary + Dearness Allowance (DA) to their EPF account each month.
Employer Contribution
Employers also contribute 12% of Basic Salary + DA, but the allocation is split into:
- 3.67% into EPF.
- 8.33% into EPS (Employee Pension Scheme) (for salaries up to ₹15,000/month).
Breakdown Example
If an employee’s Basic Salary + DA = ₹20,000/month:
- Employee Contribution: ₹2,400 (12% of ₹20,000).
- Employer Contribution:
- ₹1,250 to EPS (maximum allowed limit: ₹15,000 × 8.33%).
- ₹1,150 to EPF (remaining 3.67% of ₹20,000).
Employer’s Additional Contributions (Hidden Costs for Employers)
In addition to the 12% EPF contribution, employers also pay administrative charges:
- 0.5% for EDLI (Employee Deposit Linked Insurance Scheme).
- 0.5% for EPF Administrative Charges.
Total Employer Outflow
Employers pay around 13% to 14% of an employee’s Basic Salary in total EPF-related costs.
EPF Contribution Rules for Different Salary Slabs
Salaried Employees Below ₹15,000/month
- EPF contribution is mandatory.
- 8.33% of the employer’s contribution goes into EPS, and the rest goes into EPF.
Salaried Employees Above ₹15,000/month
- EPF is still mandatory.
- Employer’s EPS contribution is capped at ₹1,250/month (₹15,000 × 8.33%).
- The remaining contribution goes into EPF.
Exemptions & Voluntary Contributions
- Employees can voluntarily contribute more than 12% through VPF (Voluntary Provident Fund).
- Employers are not required to match extra contributions beyond 12%.
EPF Contribution Limits & Tax Benefits
Tax Exemptions Under Income Tax Act
- Employee’s contribution up to ₹1.5 lakh per year qualifies for Section 80C deduction.
- Employer’s contribution is tax-free up to 12% of salary.
Taxable EPF Interest for High-Income Earners
- If employee’s EPF contribution exceeds ₹2.5 lakh/year, the interest earned on the excess amount is taxable.
Government’s Interest Rate (2025 Update)
- The current EPF interest rate is 8.15% for 2023-24 (subject to annual review).
EPF Contribution Rules for Different Types of Employees
Private Sector Employees
- Standard 12% contribution rule applies.
Government Employees
- Covered under General Provident Fund (GPF) instead of EPF.
Self-Employed & Freelancers
- Not eligible for EPF unless they opt for Voluntary Provident Fund (VPF).
Can You Reduce or Increase Your EPF Contribution?
Reducing EPF Contribution
- Employees cannot contribute less than 12%, except in certain exemption cases.
Increasing EPF Contribution (VPF)
- Employees can voluntarily contribute up to 100% of their Basic Salary to VPF.
- Employers do not have to match extra contributions beyond the standard 12%.
What Happens If EPF Contributions Are Missed?
Employer Fails to Deposit EPF?
- Employers face a penalty of 12% per year for late deposits.
- Employees can file a complaint on the EPFO Grievance Portal.
Job Loss or Career Break?
- EPF continues to earn interest for 36 months (3 years) before becoming inactive.
Conclusion
Final Thought:
Understanding your EPF contributions helps you maximize retirement savings while enjoying tax benefits. Ensure you monitor contributions regularly for a secure financial future!