EPFO: Seven Key Things Gen Z Joining Their First Job Should Know About EPF

If you are a Gen Z professional entering the workforce, understanding your salary and other benefits is important for building a financially secure future. Preparing a financial plan with your first job will help in building wealth in the long run. Investing in your early years of work could lead to higher gains due to the power of compounding, as you will get a longer period to invest your money across different schemes.

One of the most important benefits is the Employees' Provident Fund (EPF), a retirement savings scheme managed by the Employees' Provident Fund Organisation (EPFO). The government-backed scheme is aimed at providing retirement security to employees in the private sector.

If you've just started your first job, here are a few things you need to know about EPF to plan your investments better, while maximising benefits.

1) EPF Is Mandatory For Salaried Employees

If you work in an organisation with 20 or more employees and earn a basic salary and dearness allowance (DA) of up to Rs 15,000 per month, your employer must enrol you under the EPF scheme. EPF ensures you automatically start saving for retirement with your first salary.

2) Both You And Your Employer Contribute

Each month, 12% of your basic salary and dearness allowance is deducted towards EPF. Your employer also contributes 12%, though part of their contribution goes into the Employees' Pension Scheme (EPS). This dual contribution builds your retirement corpus over time.

3) EPF Earns Tax-Free Interest

The money in your EPF account earns interest every year, and this interest is tax-free if you complete five years of continuous service. The current EPF interest rate is 8.25%, higher than many bank savings accounts and fixed deposits (FDs), making it a safe and rewarding way to invest for retirement.

4) You Get A Universal Account Number (UAN)

When you join EPF, you're assigned a Universal Account Number (UAN). This number stays the same throughout your career, no matter how many jobs you change. It helps you track and manage your EPF account online and makes transferring your balance between employers easier.

5) EPF Allows Partial Withdrawals For Certain Needs

While EPF is meant for retirement, you can make partial withdrawals for specific reasons like buying a house, medical treatment, marriage, or higher education, after fulfilling certain conditions. This flexibility can be helpful for important life milestones without breaking your long-term savings.

6) Early Withdrawal Comes With Tax Implications

If you withdraw your EPF balance before completing five years of continuous service, the amount becomes taxable. But if the withdrawal amount is less than Rs 50,000, no TDS (Tax Deducted at Source) will be deducted. For withdrawals exceeding Rs 50,000, TDS is applicable at 10% provided you submit your PAN details. If you fail to furnish your PAN, TDS will be deducted at a higher rate of 20%.

7) EPF Is A Safe And Reliable Retirement Tool

EPF is backed by the Government of India, making it a safe, low-risk investment. Unlike stocks or mutual funds, your EPF balance doesn't depend on market volatility. Starting early ensures you benefit from compounding interest over decades, helping you build a solid retirement fund.

While retirement may seem far away, EPF is an easy way to secure your financial future while enjoying tax benefits. As you embark on your career, understanding EPF allows you to make informed financial choices from the very beginning. Don't overlook that deduction on your payslip — it's your future wealth growing steadily in the background.