EPF explained: contributions, interest, pension and tax
How EPF works in 2026: the 12% contributions, where the employer's share goes, how 8.25% interest is worked out, the EPS pension and when EPF is taxed.
Try it: EPF calculatorWork out your EPF corpus at 58 at 8.25% interest, with the ₹25,000 wage ceiling, salary hikes, VPF and an EPS pension estimate.The Employees' Provident Fund is a retirement account run by EPFO for salaried people. Every month a slice of your pay and a matching slice from your employer go into it, and it earns interest set each year. For most salaried Indians it is the biggest savings they have.
Who has to join
EPF is compulsory for employees of establishments with 20 or more staff whose pay is up to the wage ceiling, which is ₹25,000 a month since 17 September 2026. People earning more can join or continue, and most large employers enrol everyone.
The contributions
- You: 12% of basic pay plus dearness allowance.
- Your employer: 12%, split into 8.33% of pay up to the ceiling for the Employees' Pension Scheme (EPS), and the rest for EPF.
- Voluntary PF (VPF): you can put in more, up to 100% of basic. It earns the same rate, and your employer does not match it.
Above the ceiling, contributing on full basic pay is optional for both you and your employer.
Interest
The rate was 8.25% for both 2024-25 and 2025-26. EPFO's central board recommends it and the Central Government approves it. Interest is worked out each month on the balance at the start of the month and added once a year. The account keeps earning even if you change jobs and stop contributing, until it becomes inoperative, usually around 58. After you leave a job, interest on the balance is taxable.
The pension
EPS pays a monthly pension at retirement if you have at least 10 years of service, or a reduced pension from 50. The formula is pensionable wages × years of service ÷ 70. Pensionable wages are the average of your last 60 months, capped at the ceiling that applied in each period, so service before 17 September 2026 counts at ₹15,000 and later service at up to ₹25,000. The minimum pension is ₹1,000. Your EPS money is in a pooled fund, not your own account, so it does not show as a balance.
Insurance
EDLI, the insurance part of EPF, pays your family if you die in service. The payout is capped at ₹7 lakh. You pay nothing for it.
Tax
- Your contributions count towards the ₹1.5 lakh deduction under section 123 of the new Act (formerly 80C), in the old regime only.
- Interest on your own contributions above ₹2.5 lakh a year is taxable (₹5 lakh if your employer does not contribute).
- Employer contributions to EPF, NPS and superannuation together above ₹7.5 lakh a year are taxed as a perk.
- Withdrawals after 5 years of continuous service are tax free. Earlier ones are taxable.
Keep it working for you
- Use one UAN for your whole career and transfer old balances when you change jobs.
- Link your Aadhaar, PAN and bank account to your UAN so claims go through.
- Check the passbook every few months. Missing employer deposits are easier to fix early.
Sources: EPS 2026, Gazette G.S.R. 527(E), All India Radio: 8.25% rate for 2024-25, Upstox: 8.25% rate for 2025-26 notified, Ministry of Labour: wage ceiling note, Upstox: EDLI capped at ₹7 lakh, ClearTax: tax on EPF interest above ₹2.5 lakh.
Rules, rates and limits change. Check the official source linked above before you rely on a figure here. Posts never contain referral or affiliate links from the writer.
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