An Employee Provident Fund is a scheme that has been put in place for all salaried employees working in a corporate organization with 20 or more employees. The Employee Provident Fund Organization of India or EPFO has instructed all organizations to put a fraction of employees’ salaries into the provident fund. Also, the employers themselves are required to contribute their share to the provident fund. The main goal of the EPF scheme is to ensure that by the time the employee retires or is unable to work anymore due to disability, he or she shall have a sizeable fund in place. Read on to find out exactly how PF works.

How does it work?

Step 1: The EPF deductions are made from your salary

Everyone who has been a salaried employee knows that various deductions are made on our monthly salary. One such deduction is for the Employee Provident Fund, which is clearly specified on your salary slip. So, what exactly is the PF process? According to the EPF rules, 12 percent of your salary must go towards your provident fund. Your company is also required to contribute the same 12 percent, out of which 8.33 percent of the salary is directed towards the Employee Pension Scheme or EPS. The remaining 3.67 percent are put into your EPF.

Step 2: All EPF funds are pooled

The collected funds from you and all other employees are pooled together and invested by a trust. The pooled funds also generate interest at a rate anywhere between 8 to 12 percent as decided by the government.

This amount keeps growing due to your monthly contributions as well the yearly compound interest applicable. The EPF remains active till you decide to withdraw it after your retirement.

Step 3: Withdrawal of Employee Provident Fund

There are two main ways by which you can withdraw your provident fund.
  • The first is after you attain the age of 58 years, which is the retirement age. After you’ve reached the retirement age, you can apply to withdraw your Employee Provident Fund via your company.

  • The second way is to withdraw your EPF before your retirement age. This can be done if you have been unemployed for one whole month, in which you case you’re allowed to withdraw 75 percent of your provident fund. However, it is to be noted that employer’s contribution of the provident fund can only be withdrawn after 58 years of age.
Final word

Overall, the Employee Provident Fund scheme is a great way to save up some funds for your retirement. Apart from that, it also acts as an emergency fund in case you require money for health expenses, marriage or house loan payments.

Learn more about your Pension Plans here.


The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.

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