Benefits of Provident Fund: Not Commonly Known

Despite the popularity of the EPF as a saving tool, not many people are enthused by or aware of the Employees’ Pension Scheme. Introduced in 1995, it is funded by diverting 8.3% or a little more than a third of your PF contribution. Then pension on retirement is linked to the number of years in service and the average salary drawn in the year before retirement.

However, the scheme has failed to draw the EPFO’s members because of the measly pay outs associated with it. The reason is that since most employers pay PF only on the mandatory salary cap of Rs 6,000  per month, the pension income  for majority of workers is abnormally low at times less than Rs 1,000 a month.

It is however, possible to get a higher pension income. Good employers pay Provident Fund (PF) contributions on the entire basic salaries. If your basic pay is Rs 30,000 a month, employers can invest 24% of this amount into your PF account. You will be entitled to a pension on the basis of your actual basic pay rather than Rs 6,500.

For salaries up to Rs 6,500 the government also chips in with a subsidy of Rs 75.

Another way smart employer’s help boost the pension is by raising the worker’s salary in the last year of employment. Suppose I earn Rs 25,000 and contribute 8.33% towards EPS. However, on my 57th birthday my employer can rise my salary to Rs 1 lakh. Since my salary for the last one year will be Rs 1 lakh. I can get a pension of around Rs 50,000. So you can get twice your original salary as pension. However, for this the employer should have contributed his share to the Provident Fund on the actual basic salary, not the mandated limit of Rs 6,500 for the entire service period. Though this is not fair to other employees as they are part of the pension pool, the pension scheme’s design makes this manipulation possible.

If you don’t want a pension from EPF, you can get the EPS money as a lump sum along with your PF balance. The benefits will not be linked to the actual contributions made, but to your last year’s average salary and the number of years in service.

The EPF rate has to be  declared at the beginning of every financial  year so that  all members withdrawing or retirement from the system through the year get the interest that is due to them.

But in recent years, the EPF rate has become  a matter of prolonged  political debate  and is often declared and notified much after the end of the financial year. Till the rate is notified for a particular year, employee’s withdrawals are credited at the previous year’s rate. For instance in 2010-11 the concerned ministry announced a rate of 9.5% but it is yet to be notified. So, lakhs of workers whose PF claims have been settled so far, have lost out on the 1% increase over last year’s rate of 8.5%.

If you have withdrawn your PF balance during this year while the government hasn’t notified the PF rate you can approach your PF office later to pay you the higher interest rate on the balance.

On the other hand if your claim is not settled within 30 days of applying you can move the court. If it is established that the delay was due to inadequate reasons you will be entitled to an interest on the balance at the rate of 1% for every month of delay.

Running short of funds to buy a house? Or perhaps your child’s education cost is more than you had planned for? At such times, it’s easy to fall back on your EPF savings. While you can’t with draw the entire corpus you can do so partially for specific occasions such as children’s education, marriage or for buying   property. Find out when you can avail of this facility, the amount you can withdraw and the conditions you need to fulfill.

To obtain the loans as mentioned above you should have completed a minimum of seven years of service

The maximum amount you can draw is 50%  of your contribution. You can avail of it three times in your working life.

You will have to submit the wedding invitation or a certified copy of the fee payable to the education institution.

You can avail of it for major surgical operations in a hospital or by those suffering from TB, leprosy, paralysis, cancer, and mental derangement or heart ailments.

The maximum amount you can draw is six times your salary or the entire contribution made by you till date whichever is less.

You must show proof of hospitalization for one month or more with a leave certificate for that period from your employer. You must also prove that you are not a member of the Employees’ State Insurance Corporation or are unable to use its facilities for surgery / treatment.

  • Abedeen7

    Good article and presented well. Hope this will help lot of our members to know about EPF. keep posting informative posts.


  • nisar

    Dear Sir,

    Its good but there is 5 years option too for getting advance from PF under 68 B & that is for construction or purchase of dwelling house. If incorrect please correct me




  • Naren

    Thanks, indeed its very information article. can you please let us know what is the procedure for transferring PF of old company to the new one.

  • Jeetendar Das

    good information about PF for everyone . It will help every HR personnel .

    Halonix Limited

  • priyan888

    The following points are not correctly stated:
    You cant raise your salary in the last year of service, as the maximum ceiling is pegged at Rs6500/-
    Only the penion members who have less than 10 yrs of service can withdraw their cash benefit .
    EPF cont (100%salary)allowed under EPF ACT notwithstanding any tax exemption limits under IT Act.EPF accumalations earn good interest,secured and above all tax free.

  • Sushilgade2

    this is good articals. pls. full information send my email Id –


  • Krishan Grover

    Sir:  What is current cieling of Gratuity payment after an employee resign after period of 17 years or so.  Is cieling amount of RS. 3.5 lacs changed and enchanced.
    Kindly confirm correctness  Thanks Kumar

  • Shikha

    Can a company have EPF with only 7 employees?


  • vijay

    sir, I want to give some clarification regarding enhancement of pension contribution, the enhancement towards EPS @8.33% on your total salary should be from day one of your joining, you cannot increase in the middle of your service or like that, then only you will be eligible for enhanced rates of pension.

  • Lollita Pereira

    If i claim for housing kind of loan against my PF then how do i have to pay back for this loan?


    Is  it  wise to  transfer the  PF  &  Pension fund  or  to  withdraw the  amount  and  invest in  other  fund.

  • Devjawaji

    Really nice article .. I hv few queries..a. Is every member of PF eligible for pension. b. How many years of service needs to be completed for eligibility of pension. c. What about switching of companies and discontinuation in between because of change in job etc.

  • Uday_pr

    Good article. Sir, I was member of PF but when I went abroad, I had withdrawn all the amount. But, I was member of FPF scheme. Now, again I had started service in India and became member of PF. What should I do to get the benifits of FPF?
    My mail id is

  • swaroop

    very good article