What Is EPF?
Employees' Provident Fund (EPF) is a government-backed retirement savings scheme for salaried employees in establishments covered under the Employees' Provident Funds Act, 1952. Both you and your employer contribute 12% of your Basic Salary plus Dearness Allowance (DA). Your contribution is deducted from salary; the employer's contribution is over and above your salary (part of CTC but not in-hand). EPF offers tax-free, guaranteed returns (currently ~8.15% p.a.) and is one of the cornerstones of retirement planning for Indian salaried professionals. Understanding how the contribution is calculated helps you decode your payslip and plan your retirement corpus.
Key Takeaways
- Employee: 12% of Basic + DA (your contribution, deducted from salary)
- Employer: 12% of Basic + DA (8.33% to EPS, 3.67% to EPF, subject to caps)
- EPS cap: Employer EPS limited to 8.33% of ₹15,000 = ₹1,250/month
- VPF: Voluntary extra contribution up to 100% of Basic+DA; employer need not match
- Use EPF Calculator: Project balance at retirement with salary growth
Employee EPF Contribution
You contribute 12% of your Basic Salary plus Dearness Allowance (DA). This is mandatory for most employees in EPF-covered establishments. The amount is deducted from your salary every month and credited to your EPF account. Only Basic and DA are used—HRA, special allowance, bonuses are excluded. If your Basic+DA is ₹40,000, your EPF contribution is ₹4,800 per month. There is no cap on the employee side—you contribute 12% on full Basic+DA.
Employer EPF Contribution: The Split
The employer also contributes 12% of Basic+DA. But this 12% is split: 8.33% goes to the Employee Pension Scheme (EPS), and the remaining 3.67% goes to your EPF account. There's a cap on the EPS portion: 8.33% is calculated only on ₹15,000 (as of current rules). So employer EPS = 8.33% of min(Basic+DA, ₹15,000) = max ₹1,250. The rest of the employer's 12% goes to EPF. Example: Basic+DA ₹40,000. Employer total 12% = ₹4,800. EPS = 8.33% of ₹15,000 = ₹1,250. EPF from employer = ₹4,800 − ₹1,250 = ₹3,550.
Worked Example
📊 EPF calculation for Basic+DA = ₹50,000
Voluntary Provident Fund (VPF)
You can voluntarily contribute more than 12%—up to 100% of Basic+DA. This is called VPF. The employer is not required to match the voluntary portion. VPF earns the same interest as EPF and is tax-free under 80C. If you want to save more for retirement without the complexity of other instruments, VPF is a simple option. The interest rate is the same as EPF (currently ~8.15%), which is attractive for risk-free savings.
Why EPF Varies by Salary Structure
EPF depends entirely on Basic and DA. Companies with a high Basic component (e.g. 50% of CTC) result in higher EPF. Companies that keep Basic low (e.g. 30% of CTC) to reduce employer PF cost result in lower EPF. When comparing job offers, a higher Basic not only means more EPF but often better gratuity and leave encashment, since these are also calculated on Basic. Understanding your structure helps you optimise and project your retirement corpus.
Use the EPF Calculator
Use our EPF Calculator to project your EPF balance at retirement. Enter current Basic+DA, expected salary growth, and years until retirement. The calculator shows monthly contribution, annual accumulation, and estimated corpus with compound interest.
Disclaimer
EPS and EPF rules are subject to change. Verify with employer and EPFO. Calculations are indicative.