Provident Fund: From Benefits to Withdrawals—All Your Questions Answered

The Provident Fund (PF) is a key savings tool provided by the government to help employees in the organised sector build a long-term retirement fund. The scheme is managed by the Employees' Provident Fund Organisation (EPFO).

At present, EPFO offers 8.25% interest on PF funds for the Financial Year 2024-25 (FY25). With the government’s backing, the scheme is seen as a reliable savings tool and a smart way to diversify income sources for better financial health.

Under the PF regulations, employers are mandated to contribute to the provident fund scheme. It works by taking monthly contributions from both the employer and the employee. Employees who are enrolled in the scheme, face certain deductions on their monthly salary, which go towards their PF fund. A similar amount is contributed by the employer as well. EPFO rules apply to establishments with 20 or more workers.

PF scheme is aimed at generating a long-term pension corpus for salaried individuals. Many employees have questions about how the PF scheme works, its benefits, and withdrawal rules. To help clear common doubts, here are answers to some frequently asked questions:

How Much Contribution Is Made In PF Scheme?

An employee is required to contribute 12% of their basic monthly income towards the PF scheme. The employer is also mandated to contribute a similar amount. From the employer's contribution, a portion (8.33%) goes into the Employees’ Pension Scheme (EPS), and the remaining goes to PF.

Which Income Bracket Employees Are Required To Contribute To EPF?

Employees with a monthly salary (basic + dearness allowance) of up to Rs 15,000 are mandatorily required to contribute to the Employees' Provident Fund (EPF). However, those earning above Rs 15,000 monthly can also voluntarily opt-in for EPF contributions if their employer allows it.

Can You Withdraw PF Funds Before Retirement?

Certain rules allow employees to partially withdraw their PF amount during certain emergencies. These include house construction, loan repayment, and marriage, among other things. Moreover, the rules allow withdrawal of PF amount during extended periods of unemployment. For instance, if a contributor remains unemployed for more than 1 month, they can withdraw up to 75% of their PF balance. If the period of employment touches two months, one can withdraw the full 100% of their PF balance.

Are You Required To Contribute During Unemployment?

Under EPFO rules, both the employee and employer must contribute to PF. So,  during unemployment, people do not need to make any PF contributions.

Are PF Withdrawals Taxable?

According to the rules, PF withdrawals made before completing five years of continuous service are taxable. Additionally, any interest earned on an employee's EPF contribution exceeding Rs 2.5 lakh in a financial year is also subject to tax.