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Understanding Provident Fund: Significance and Retrieval

Publish Date: June 8, 2024

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Provident Fund (PF) is a critical component of financial planning and retirement savings for employees. It’s designed to provide financial security and stability post-retirement, ensuring that individuals have a nest egg to rely on during their non-working years. This blog post aims to provide a comprehensive overview of the Provident Fund, its significance, and the methods for retrieving it.

What is Provident Fund?

A Provident Fund is a government-mandated savings scheme for employees, particularly in countries like India. Both the employee and the employer contribute a portion of the employee’s salary to this fund every month. Over time, this fund accumulates and earns interest, building a significant corpus that the employee can access upon retirement or under certain conditions.

Significance of Provident Fund

  • Retirement Savings:
    • The primary purpose of a Provident Fund is to ensure that employees have a substantial amount saved up for their retirement. It provides financial independence and security during the non-earning years.
  • Tax Benefits:
    • Contributions made to the Provident Fund are eligible for tax deductions under various sections of the Income Tax Act, offering substantial tax benefits to both employees and employers.
  • Financial Discipline:
    • Regular, mandatory contributions from both the employee and employer promote a disciplined approach to savings. This consistent saving habit helps in accumulating a considerable corpus over time.
  • Security and Stability:
    • The Provident Fund is a government-backed scheme, ensuring that the funds are secure. The interest rates are generally higher than regular savings accounts, providing better returns on the savings.
  • Emergency Fund:
    • In addition to retirement benefits, the Provident Fund can serve as an emergency fund. Under certain conditions, employees can withdraw money from their PF account to meet unforeseen expenses.

Types of Provident Funds

  1. Employees’ Provident Fund (EPF):
    • This is a mandatory savings scheme for salaried employees. Both the employee and employer contribute 12% of the employee’s basic salary and dearness allowance to the EPF account.
  2. Public Provident Fund (PPF):
    • PPF is a long-term investment option offered by the government. It is available to both salaried and self-employed individuals. The contributions are voluntary, and the scheme has a tenure of 15 years, extendable in blocks of 5 years.
  3. Voluntary Provident Fund (VPF):
    • Employees can voluntarily contribute more than the mandatory 12% towards their EPF. The extra amount is the VPF, which also earns interest and provides additional retirement savings.

Slabs of Employees’ Provident Fund (EPF)

The Employees’ Provident Fund (EPF) scheme involves contributions from both the employee and the employer. The contributions are based on certain slabs and rates as prescribed by the Employees’ Provident Fund Organisation (EPFO) in India. Here’s a detailed breakdown:


Contribution Rates

  1. Employee’s Contribution:
    • The employee contributes 12% of their basic salary plus dearness allowance (DA).
  2. Employer’s Contribution:
    • The employer also contributes 12% of the employee’s basic salary plus DA. This contribution is further divided into:
      • EPF: 3.67%
      • Employee Pension Scheme (EPS): 8.33%

Example Breakdown

For an employee with a basic salary plus DA of ₹15,000 per month:

  1. Employee’s Contribution:
    • 12% of ₹15,000 = ₹1,800
  2. Employer’s Contribution:
    • Total: 12% of ₹15,000 = ₹1,800
      • EPF: 3.67% of ₹15,000 = ₹550.50
      • EPS: 8.33% of ₹15,000 = ₹1,249.50

Contribution Slabs for EPF

  • Basic Salary Up to ₹15,000: Mandatory contribution from both employee and employer.
  • Basic Salary Above ₹15,000: Contribution is mandatory up to ₹15,000, but both employer and employee can voluntarily contribute more.


Administrative Charges

In addition to the contributions mentioned above, employers are also required to pay administrative charges:


  1. EPF Administrative Charges:
    • 0.50% of the total wages subject to a minimum of ₹500 per month for non-functional establishments having no contributory member and ₹75 per month for other establishments.
  2. EDLI (Employees’ Deposit Linked Insurance) Contribution:
    • 0.50% of the employee’s basic salary plus DA, subject to a maximum wage ceiling of ₹15,000.
  3. EDLI Administrative Charges:
    • 0.01% of the total wages, subject to a minimum of ₹200 per month for establishments having no contributory member and ₹25 per month for other establishments.


Key Points

  • Voluntary Contributions: Both employers and employees can opt to contribute more than the prescribed rate, enhancing the retirement corpus.
  • EPF Interest Rate: The interest rate on EPF contributions is decided annually by the EPFO and is tax-free.
  • Withdrawal Conditions: Employees can withdraw from their EPF account under specific conditions such as retirement, unemployment, or for certain life events like marriage, education, or medical emergencies.

Understanding these slabs and contribution rates helps both employees and employers plan better for retirement savings and ensures compliance with EPFO regulations.


Slabs of Public Provident Fund (PPF)

The Public Provident Fund (PPF) is a popular long-term savings scheme in India, offering tax benefits and attractive returns. Here are the key details:


Contribution Limits

  1. Minimum Contribution:
    • ₹500 per financial year.
  2. Maximum Contribution:
    • ₹1.5 lakh per financial year.


Deposit Frequency

  • Deposits can be made in lump sum or in installments.
  • A maximum of 12 deposits can be made in a financial year.


Interest Rate

  • The interest rate for PPF is set by the government and is subject to change every quarter. As of the latest update, the interest rate is around 8.15% per annum, compounded annually.



  • The maturity period for PPF is 15 years. It can be extended in blocks of 5 years after maturity.


Tax Benefits

  • Contributions to PPF are eligible for tax deduction under Section 80C of the Income Tax Act.
  • Interest earned and the maturity amount are tax-free.


Withdrawal and Loan Facility

  • Partial withdrawals are allowed from the 7th financial year.
  • Loans can be taken against the PPF balance from the 3rd financial year up to the 6th financial year.


Slabs of Voluntary Provident Fund (VPF)

The Voluntary Provident Fund (VPF) is an extension of the Employees’ Provident Fund (EPF) and allows employees to contribute more than the mandatory EPF contribution.


Contribution Limits

  1. Minimum Contribution:
    • There is no fixed minimum contribution. Employees can contribute any amount as VPF, subject to their willingness and financial capacity.
  2. Maximum Contribution:
    • There is no upper limit on the amount that can be contributed to VPF. However, the maximum contribution cannot exceed the employee’s total basic salary and dearness allowance.

Interest Rate

  • The interest rate on VPF is the same as that of EPF, which is determined by the EPFO. As of the latest update, the EPF interest rate is around 8.15% per annum.

Tax Benefits

  • Contributions to VPF qualify for tax deduction under Section 80C of the Income Tax Act.
  • Interest earned on VPF contributions is tax-free up to a certain limit (currently ₹2.5 lakh per year for non-government employees). Contributions beyond this limit will have the interest taxed as per the individual’s tax slab.


  • VPF contributions can be withdrawn under the same conditions as EPF, such as during retirement, unemployment, or specific life events like marriage, education, or medical emergencies.

Key Points to Remember

  • PPF:
    • Suitable for long-term savings with a fixed tenure of 15 years.
    • Offers tax-free returns and withdrawals.
    • Limited to ₹1.5 lakh contribution per financial year.
  • VPF:
    • Flexible contribution without any upper limit (up to total basic salary + DA).
    • Offers the same interest rate as EPF.
    • Tax benefits similar to EPF with certain tax-free limits on interest earned.

Understanding the slabs and benefits of both PPF and VPF can help individuals make informed decisions about their long-term savings and retirement planning.

Retrieval Methods for Provident Fund

Retrieving the Provident Fund involves a series of steps and understanding the conditions under which withdrawals are permissible. Here’s a detailed look at the retrieval methods:

  1. Retirement:
    • The most straightforward method of retrieving the Provident Fund is upon retirement. Employees can claim the entire corpus saved in their PF account when they reach the retirement age of 58 years.
  2. Premature Withdrawal:
    • Under certain circumstances, employees can withdraw from their PF account before retirement. These include:
      • Medical Emergencies: In case of serious health issues or medical treatment.
      • Education: For the higher education of the employee or their children.
      • Marriage: For the marriage expenses of the employee or their children.
      • Home Purchase/Construction: For buying or constructing a house.
  3. Unemployment:
    • If an employee is unemployed for more than two months, they can withdraw a portion of their PF balance. This is intended to provide financial support during periods of unemployment.
  4. Partial Withdrawal:
    • Employees can partially withdraw from their PF for specific reasons, like home renovation, repayment of home loans, or specific life events, subject to conditions and limits set by the Provident Fund authorities.

Process of Provident Fund Withdrawal

  1. Unified Portal Login:
  2. Form Submission:
    • The required forms, such as Form 19 for final settlement, Form 10C for pension withdrawal benefits, or Form 31 for partial withdrawals, need to be filled out and submitted online.
  3. Verification:
    • The forms are then sent for verification to the employer. The employer verifies the details and approves the withdrawal claim.
  4. Processing and Payment:
    • Once the claim is approved, the EPFO processes the withdrawal request, and the amount is credited to the employee’s bank account linked with the UAN.
  5. Tracking:
    • Employees can track the status of their PF withdrawal claim through the EPFO portal.

Points to Remember

  1. KYC Compliance:
    • Ensure that your KYC details, such as Aadhaar, PAN, and bank account information, are updated and verified in the EPFO records.
  2. Eligibility Conditions:
    • Be aware of the eligibility conditions for various types of withdrawals to avoid rejection of claims.
  3. Tax Implications:
    • Understand the tax implications of premature withdrawals. Withdrawals before five years of continuous service may attract tax.
  4. Documentation:
    • Keep all necessary documents ready, such as medical bills for medical withdrawals, admission letters for education-related withdrawals, etc.


The Provident Fund is a crucial financial tool that offers security and stability for employees, especially during retirement. Understanding its significance and the methods to retrieve it can help you make the most of this beneficial scheme. At Laudable, we assist our clients in navigating the complexities of Provident Fund management, ensuring they can optimize their savings and plan effectively for the future. If you need any assistance or have queries regarding Provident Fund management, feel free to reach out to us.

By understanding and utilizing the Provident Fund effectively, you can secure your financial future and enjoy peace of mind knowing that you have a robust financial safety net in place.


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