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Employee Provident Fund (EPF) or Tax Saving PF

Updated on: 27 Dec, 2022 02:55 PM

Fact: Over 5 Crore Indian Residents Contribute to the EPF Scheme.
EPF (Employee Provident Fund) or Tax Saving PF is a government-managed retirement scheme for salaried persons. The EPF account acts as an emergency fund account that helps people in their retirement. But it is much more than just a retirement plan. Unlike other tax-saving programs,the Employee Provident Fund is an ideal scheme. It aims to fulfill three main objectives of every salaried-persons, which are:

  1. Wealth Creation on retirement
  2. Pension Plan (EPS)
  3. Life Insurance cover under Employee Deposit Linked Insurance Scheme or (EDLI)

EPF account, of course, attains the financial goals of the majority of people. So when one opens an EPF account, he will get a combined package of above-mentioned three important benefits. Check India’s first Tax Planning Optimizer to reduce taxes on your PF savings. In the Tax-saving PF account, some of the savings are utilized to generate wealth, some are saved as a future pension, and some are used for an insurance scheme.
To know more about Tax Saving PF- its meaning, advantages, how to open an EPF account, how to withdraw money from it, & many more queries, read the complete guide.

What is EPF or PF? Are these two the same?

EPF is the acronym for "Employee Provident Fund." It is popularly known as Provident Fund (PF) or Tax saving PF among people. It is a long-term investment instrument. It ensures a financially secure retirement for the beneficial person. Here, both the employee and employer make a periodic contribution to the PF account. This total contribution will turn out to be a lump sum of PF money in the individual's PF account. He can use it at the age of 58 after his retirement.

What is EPFO?

The EPFO stands for "Employees Provident Fund Organisation." This organization is managed by the government of India. It is one of the world's largest organizations that sustain around 24.77 crore user accounts. It wholesomely takes care of the retirement savings plan- EPF or Tax Saving PF. It is mandatory for companies having 20 or more employees' to enroll at the EPFO portal. It means that every company must register at Employees Provident Fund Organisation (EPFO) portal if it has a 20 or more employees. This rule helps employees to avail benefits related to EPF. Even companies with less than 20 employees can opt for EPF registrations on voluntary basis.

What do you mean by EPF? And how to use it?

The government of India introduces Financial Acts to reform the direct tax system. So many provisions in those acts remove difficulties faced by Indian Taxpayers. Three different Financial Acts direct the Tax Saving PF scheme:

  1. Employees' Provident Fund Scheme Act, 1952,
  2. Employees' Pension Scheme Act, 1995 &
  3. Employees' Deposit Linked Insurance Scheme Act, 1976.

The above Financial Acts provide a strong structure for this retirement scheme.
According to it, the total contribution to the Tax Saving PF account is made equally by both employer and employee. Understand the employee's contribution is entirely 12% of his salary. But the employer's contribution will be divided into EPF and EPS. So it will be lesser than 12%. When you open a Tax Saving PF account, you automatically register to EPF, EPS, and EDLI schemes. So there is absolutely no need to register the EPF, EPS, and EDLI financial instruments separately.
The only thing to remember is that you should learn how to calculate PF savings in these three primary tires. According to that, you should make your PF contribution. Consult our Chartered Accountant to know tax benefits related to PF account.

How to calculate the PF contribution?

What after you once get registered to the Tax Saving PF scheme? Now, both the employee and employer shall make a 12%-12% contribution. So on the surface, it looks like an equal contribution of 12% from both sides. But there is a catch. From the employee's side, there is a 12% contribution. But from the employer's side, the 12% contribution will only partially go to the EPF part.
The EPS part is calculated on basic salary + some dearness allowance, which is Rs. 15,000.
For example, suppose an employee's monthly salary is Rs. 60,000. Then from the employee's side, the total contribution will be 12% of Rs.60,000, i.e., Rs.7,200.
But from the employer's side, it will be partially Rs.7,200 that will go to the PF account. It will be split into three parts and then calculated,

The employer's contribution to EPF is calculated as = 3.67% of the monthly salary
= 3.67% of Rs.60,000
= Rs. 2,202
& the EPS contribution is calculated as = 8.33% of Rs. 15,000
= 8.33% of Rs. 15,000
= Rs. 1,249.50
The remaining contribution to EPF is = 8.33% of Rs. 45,000
= Rs. 3,748.50

Hence, the total EPF contribution from the employer side = Rs. 2,202.00 + Rs. 3,748.50 = Rs. 5,950.50
Overall, EPF contribution from both sides = Rs. 7,200.00 + Rs. 5950.50 = Rs. 13,150.50

Why is the EPF account known as Tax Saving PF?

The Employee Provident Fund is commonly known as the Tax Saving PF. Because it offers so many tax benefits. Some of them are listed below:

  1. It is an easy retirement investment instrument.
  2. It helps people to avail of up to 1.5 lakh tax deductions under Section 80C.
  3. If the annual contribution does not exceed Rs.2.5 lakh, then PF interest is tax-free. You only need to pay income tax on PF interest when your annual PF contribution exceeds Rs. 2.5 lakh.
  4. Earlier, there was a possibility of misuse of the employee's PF money. It may happen that the employers didn't deposit the PF contribution at EPFO on time. It leads to a loss of interest earned on PF money for the employee. To overcome this problem, the Budget 2021 came with an amendment. There is no expense deduction for employers who don't submit it on time.

What are the benefits of Tax Saving PF?

Many investment instruments, such as PPF, FD, NPS, Mutual Funds, etc., are available in the marketplace. Yet it is being noticed that salaried persons found the Tax Saving PF alluring. They consider the EPF scheme as one of the safest instruments. People can efficiently operate it once it gets registered at the EPFO portal.
Put a glimpse at its other benefits:

  • It offers an excellent interest rate.
  • It is a low-risk investment instrument.
  • It provides tax exemptions under the beneficial Exempt Exempt Exempt scheme.
  • It is an ideal scheme for retirement pension once you touch the age bar of 58 years.

Use Tax2win’s Income Tax Calculator - FY 2022-23 for filing an ITR.

What are the EPF eligibility criteria?

Opening a Tax Saving PF account for employees earning Rs. 15,000 or fewer per month is mandatory. So anyone getting a salary of Rs.15,000; is eligible to deposit his PF contribution to his Tax Saving PF account. So his employer should open an EPF account for employees such as him. It is compulsory. Even so, employees earning more than Rs. 15,000 can also voluntarily stay in this savings plan.
However, one can opt-out of this scheme at the start of his career. He should fill out a form- FORM 11 during his joining so that he will be excluded from the list of other PF employees of the companies.

How to open an EPF account?

If someone wants to open his Tax Saving PF account, then these are the steps:

Step 1. Get registered on the EPFO portal.
Open the official website of EPFO, India. Click the "Online Registration of Establishment" under services for employers. It will open a new page.

Step 2. Download the user manual.
The new page will open in a new tab that will redirect to the sign-up page of Shramsuvidha, i.e., Here, there is a tab called "Download Manual." Before proceeding with the registration, download the user manual and read it thoroughly.

Step 3. Sign-up at Shram Suvidha portal.
Once you thoroughly read the user manual, you may step ahead. Create an account at Shram Suvidha portal. Complete the sign-up by entering the individual name, mobile number, and e-mail id carefully.

Step 4. Complete filling out the form.
When you input all requisite information and sign up at Shram Suvidha, you can only fill out the Registration Form for a new EPF-ESI application. Therefore, it is advisable to fill in all the details carefully, then click on the "Submit" button.

Step 5. Attach Digital Signature Certificate.
Lastly, you need to upload the Digital Signature Certificate of the employer. You need it to receive a confirmation mail for any successful EPFO registration.

How to withdraw from an EPF account?

There are some scenarios under which an individual can withdraw his PF amount. Check the withdrawal rules of the Tax Saving PF or EPF account below:

  1. At the age of 58
  2. Unemployed for more than two months
  3. The premature death of the account holder

What is the EPF interest rate for the year 2023?

The declared EPF interest rate for the applicable fiscal year 2022-23 is 8.10%.

Frequently Asked Questions

Q- What is the PF & UAN number?

The PF is an acronym for Provident Fund, a popular retirement savings instrument and UAN stands for Universal Account Number allotted by EPFO.

Q- What is EPFO?

EPFO is an acronym for Employees Provident Fund Organisation. It is a government-managed organization that promotes savings for retirement.

Q- How much tax can you save on PF money?

One can avail of up to 1.5 lakh tax deduction on his PF money.

Q- Is the PF account eligible for tax deduction?

Yes, it is one of the best tax-saving instruments. Using it, you can avail of up to 1.5 lakh tax deductions.

Q- What is the maximum basic salary for PF contribution?

All employees drawing a salary are eligible for EPF. Moreover, it is compulsory for all employees earning less than ₹15,000 to register for the EPF. However, employees earning more than ₹15,000 can also voluntarily stay in the EPF scheme.

Q- How can I check my PF money?

First, activate your UAN- Universal Account Number to check your PF money. Then follow some steps:

Step.1 Visit the official website of EPFO, India. Then, click the tab For Employees in the drop-down menu of the Services tab.

Step.2 Now click on the Member Passbook link below the Services heading.

Step.3 You will redirect to the new login page by clicking the link. Sign in on the new page by entering your UAN and password.

Step.4 Enter your member ID after sign-up. Now you can view your passbook and claim status if any.

Step.5 When you view the passbook, it shows your PF account information and details. You can download it from there if you want.

Other than this, you may check it by giving a missed call at 011-22901406 or sending an SMS at 7738299899 from a registered mobile number.

Q- How to calculate my EPF savings?

It is tricky to calculate the 12-12% PF contribution from the employee and employer's sides. On the one hand, it is 12% of the employee's salary (Basic+ DA). On the other hand, it will get divided into two parts on the employer's side. See the above example for calculating the total EPF contribution for a better understanding.

Q- Can I withdraw my full PF money?

You can withdraw 100% of your PF money only after the age of 58 years.

Q- What is the EPF interest rate in 2023?

The applicable EPF interest rate is 8.1% for the year 2022-23. The interest raised on PF money is totally tax-free up to the limit of 2.5 lakh. Here is why EPF is also called the Tax Saving PF instrument for Indian residents.

Q- How can I withdraw my 100% PF investment?

You can withdraw 100% of your PF investment when you're at age 58 years and more under Employee Provident Fund Act 1952. Read our Income Tax Guides to enhance your knowledge base.

CA Abhishek Soni
CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.