Tip Tuesdays: Why You Should Opt for Employees’ Provident Fund (EPF) as Part of Your Salary if Your Employer Offers the Option

by Vinaya HS on February 24, 2009

in Finance

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This post is the result of a conversation I recently had with a reader.

If your employer offers you the option to avail of Employees’ Provident Fund (EPF) facility as part of your salary package, I’d strongly recommend that you take up this option. Often, employers make salary offers which compare your salary package with and without the EPF option. The package without the EPF option is deceptively alluring since it always shows a higher monthly gross — but not necessarily net (which is not shown) — pay. You shouldn’t jump up and choose this option simply by looking at the illustrative (and often illusory) gross figures.

So, what do you gain by opting for the EPF facility?

  • You contribute 12% of your monthly basic each month. Your employer also contributes an equal amount each month. That’s 24% of your monthly basic saved each month!
  • The total contribution earns 8.50% per annum compounded (interest rates are decided each year though).
  • Your annual contribution (i.e. 12% of your monthly basic x 12 months) automatically qualifies for income-tax exemption under Section 80C.
  • When you change jobs, you can choose to withdraw the accumulated balance (takes a few months for the amount to be credited) or you can transfer the accumulated balance into the account opened by your new employer.

For me, the automatic savings each month is good enough a reason to opt for this facility. Over a period of few years, this can grow into quite a substantial sum. I doubt if I’d voluntarily save this much money!

What do you think? What has your experience been?

Update: February 25, 2008

Below is a continually updated list of EPF-related queries which are answered in leading financial magazines such as Outlook Money and Money Today.

From Money Today, March 05, 2009 — Page 06

Q: I have been working with an MNC for the past three years. Now, the company is shutting down and I am moving to a new job with a private firm. Should I withdraw the money from my provident fund or transfer the balance to my new account?

A: The taxability of the provident fund amount withdrawn depends on the duration for which the employee contributes to it. If he has worked for more than five years with the same company, the amount withdrawn from the provident fund is exempt from tax. If he has worked for less than five years, the entire amount withdrawn is taxable. As you have been with the firm for only three years, it is advisable to transfer the balance to your new employer. This will help consolidate your provident fund money and you will not have to pay any tax.

Tip Tuesdays is my initiative to share practical personal finance tips — every Tuesday. I’d be delighted if you could share a tip or two from your own experiences. Drop a comment to submit your tip. And, as always, do spread the word if you find this useful.

Thanks for reading this article. I'd love to hear your opinion. Please use the comments section below to share your thoughts. I frequently write new articles that also cover several other aspects of personal finance including credit cards, financial goals, health insurance, income tax, life insurance, mutual funds, retirement planning, and much more. You can Subscribe through Email and receive new articles directly in your Inbox or you can Subscribe through the RSS Feed and receive new articles in your feed reader.

{ 13 comments… read them below or add one }

shilpa February 24, 2009 at 9:10 AM

This is a good tip and makes a lot of sense too.
The only hitch is when you try to transfer the money when you change companies. That takes an awful lot of time and requires a lot of follow up.

But tell me something. Is there a way to get an annual statement from the PF dept?

Vinaya H S February 24, 2009 at 10:31 AM

There’s no reliable way to get such a statement. You’d need to be very patient and make multiple visits to the regional EPFO to get such a statement.

Girish February 24, 2009 at 10:20 PM

Some more info on this:
a>If Your EPF account is 4+ years when you change your job and have a break
you can withdraw the money without tax.
b>If Your EPF account is lesser than 4+ years when you change your job and have a break
you can withdraw the money with tax(33% based on the slab).
c>If your EPF account is more than 5 or 10 years( not very much sure on this)
you can avail a loan on your EPF…
My two words!!!!

Vinaya HS February 24, 2009 at 10:51 PM

@Girish: Thanks for the valuable information.

Vinaya HS February 25, 2009 at 7:01 AM

@Girish: See my update to this post. I think the time limit is 5 years.

Girish February 26, 2009 at 10:23 PM

Thanks for the update…

Shankar April 3, 2009 at 12:10 PM

Cool Posting……

Ame April 16, 2009 at 4:05 AM

Thanks for the info. I wasn’t aware that the money withdrawn from EPF is taxable!!!!

ANIL BANSAL May 5, 2009 at 5:35 PM

i realy pleased to know a.said knowledge. Plz send a mail abaut transfer e.p.f. from one to another a/c. or withdrawl procedure.

Abhishek Ganguly June 21, 2009 at 2:30 PM

I have worked with Infosys and TCS for a total period of 6 years. Now I have moved to tech Mahindra recently.I have withdrawn my total PF corpus that was lying with TCS and opened up a new PF account with Tech Mahindra.The total corpus of PF for 6years that I have received from TCS is 2 lacs without any tax deduction.Now I want to invest this amount in a secure and profitable way.Please let me know the options.Also let me know whether this has been a right decision on my part or not.I also have a Public Provident Fund account for the last 4 years.So,I have already invested around 70K from the PF money to PPF.Is this a good decision?

jaya June 25, 2009 at 1:24 PM

This is regarding my epf account transfer. I am leaving my present job due to my husband’s transfer. I want to know if there is a maximum duration within which one must compulsarily transfer his/ her epf account. How long can i stay unemployed before i am able to transfer my epf account.


Kumar Mehta February 28, 2010 at 11:55 AM

What if employer doesnt pay the EPF in time to Provident Funds office. I have joined new co. 6 months back and had decided to withdraw my PF hence accordingly I gave all relevant details to the co. to withdraw the my EPF.

After 4 months of franctic follow up with the co. I have come to know from freindly resources my EPF was not paid for last financial year. And still co. has not paid the same. And each and everytime Co/MD gives me excuse of some problem has cropped up.

In this scenario how am I suppoed to receive my PF from the Govt.

Ramkumari March 23, 2010 at 5:55 PM

Im working n pvt Ltd for past 11years (wherein only 3staffs working) and company doesnot provided EPF even after somany requests. Is there anyway I can push in a legalway togive me EPF or can I open my own PPF. Is PPF has the same benefit aslike EPF ? Pls advise. Thanks,

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