EPF (Employee Provident Fund)

The Employee Provident Fund (EPF) is a compulsory retirement savings scheme in India for salaried employees earning a basic salary of ₹15,000 or less per month. Both the employee and employer contribute 12% of the employee's basic salary plus dearness allowance to the EPF account, managed by the Employees' Provident Fund Organisation (EPFO).

EPF offers 'EEE' (Exempt-Exempt-Exempt) tax status: contributions qualify for Section 80C deduction (up to ₹1.5 Lakhs), interest earned is tax-free, and withdrawals at retirement (after 5 years of continuous service) are completely tax-free. For FY 2025-26, the EPF interest rate is 8.25% per annum, compounded annually. However, interest earned on employee contributions exceeding ₹2.5 Lakhs per year became taxable from 2021.

Real-World Example If Sameer's basic salary is ₹30,000 per month, he contributes 12% (₹3,600) to EPF, and his employer also contributes ₹3,600. Over a year, ₹86,400 is deposited, growing tax-free at 8.25% interest. After 30 years of compounding, his EPF corpus becomes substantial, withdrawable completely tax-free at retirement.