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Understanding EPF Contribution: A Comprehensive Guide


EPF Contribution

The Employees’ Provident Fund (EPF) is a vital financial instrument designed to provide financial security to employees during their retirement. EPF contributions form a crucial aspect of this scheme, ensuring that individuals build a substantial corpus over the course of their employment. In this article, we will delve into the intricacies of EPF contribution, exploring its significance, calculation, and the various aspects associated with it.

  1. What is EPF’s Contribution?

The EPF contribution is a systematic deposit made by both the employer and the employee into the Employees’ Provident Fund. The primary objective is to create a savings pool that can be utilized upon retirement or in times of financial need. The contribution is made monthly and is calculated as a percentage of the employee’s basic salary plus dearness allowance.

  1. Components of EPF Contribution:

    a. Employee’s Contribution: The employee contributes a fixed percentage (currently 12%) of their basic salary and dearness allowance towards the EPF. This amount is deducted from the employee’s salary and deposited into their EPF account.

    b. Employer’s Contribution: The employer also contributes an equal amount (12%) on behalf of the employee. However, it’s important to note that out of the employer’s contribution, 8.33% is diverted to the Employee’s Pension Scheme (EPS), and the remaining 3.67% goes to the EPF.

  2. Calculation of EPF Contribution:

    The EPF contribution is calculated on the sum of the employee’s basic salary and dearness allowance. The formula for EPF contribution is as follows:

  3. Voluntary Provident Fund (VPF):

    Apart from the mandatory EPF contributions, employees can also opt for the Voluntary Provident Fund (VPF). VPF allows employees to contribute more than the mandatory 12% of their basic salary and dearness allowance. The contribution to VPF is also eligible for the same tax benefits as the EPF.

  4. Tax Implications:

    EPF contributions are eligible for tax benefits under Section 80C of the Income Tax Act. Both the employee’s and employer’s contributions are tax-deductible up to a specified limit. The interest earned on the EPF is also tax-free.

  5. Withdrawal and Transfer:

    EPF accumulations can be withdrawn upon retirement, resignation, or in the case of specific emergencies. Additionally, the EPF account is transferable, allowing employees to seamlessly transfer their EPF balance when changing jobs.

  6. Monitoring EPF Contributions:

    Employees can track their EPF contributions through their monthly pay slips, which should detail the specific amounts deducted and contributed by the employer. The EPF passbook, available online, is another resource for monitoring contributions and the overall balance.


Understanding EPF contribution is crucial for both employers and employees to ensure financial security during the post-employment phase. As a mandatory savings scheme, EPF not only serves as a retirement corpus but also offers financial stability during emergencies. By comprehending the nuances of EPF contribution, individuals can make informed decisions about their financial well-being and plan for a secure future.


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