Complete Guide to Employees' Provident Fund (EPF) & VPF Planning
The Employees' Provident Fund (EPF) is India's premier sovereign-backed retirement system for salaried employees. Managed by the Employees' Provident Fund Organisation (EPFO), it combines mandatory monthly salary savings with attractive compound interest backed by the Government of India.
How EPF Monthly Contributions Work
Every month, 12% of your Basic Salary + Dearness Allowance (DA) is deducted from your paycheck and deposited into your EPF ledger. Your employer also matches this 12% contribution, but splits it into two distinct accounts:
- Employee Share (12%): The entire 12% goes straight into your EPF account balance.
- Employer Share to EPF (3.67%): 3.67% goes into your EPF account balance to compound alongside your share.
- Employer Share to EPS (8.33%): 8.33% goes into the Employees' Pension Scheme (EPS), capped at a basic wage limit of ₹15,000 per month (maximum ₹1,250/month).
Voluntary Provident Fund (VPF) — Accelerating Retirement Wealth
If you want to allocate more of your salary into risk-free fixed income, you can opt for Voluntary Provident Fund (VPF). VPF allows employees to voluntarily contribute up to 100% of their Basic Salary and DA beyond the compulsory 12% EPF.
VPF earns the exact same high sovereign interest rate as regular EPF (currently 8.25% p.a.) and is managed under the same Universal Account Number (UAN).
Income Tax Rules for EPF & VPF Deposits
EPF enjoys EEE (Exempt-Exempt-Exempt) tax status provided you complete 5 continuous years of service before withdrawal.
Tax Threshold Notice: Starting from Financial Year 2021-22, interest earned on employee contributions (EPF + VPF combined) exceeding ₹2.5 Lakhs in a financial year is subject to income tax as per your applicable income tax slab.