NISM-Series-X-B: Investment Adviser (Level 2) · Retirement Products

Employees' Provident Fund and Public Provident Fund Explained

Updated 11 October 2026 · Fact-checked

EPF is a mandatory, salary-linked retirement fund. Employee and employer each pay 12% of basic plus DA, and the employer's share is split between EPF and EPS. PPF is a voluntary, government-backed 15-year account for resident individuals, with yearly deposits of ₹500 to ₹1,50,000. Solve questions by comparing eligibility, limits, interest, lock-in, withdrawal and tax.

Understand Employees' Provident Fund and Public Provident Fund

EPF is a retirement savings scheme run by the EPFO under the Employees' Provident Fund and Miscellaneous Provisions Act, 1952. It is compulsory for covered establishments, generally those with 20 or more employees, and for employees within the statutory wage ceiling of ₹15,000 a month. Employees earning more can join if the employer agrees. You and your employer both contribute every month, so savings build up without effort.

The standard contribution is 12% of basic wages plus dearness allowance from the employee and 12% from the employer. The employee's 12% goes fully to the EPF account. The employer's 12% is split. 8.33% goes to the Employees' Pension Scheme (EPS), calculated on wages up to ₹15,000, so it is capped at ₹1,250 a month. The rest, about 3.67% (or more when wages are higher), goes to the EPF account. The interest rate is declared every year by the government on EPFO's recommendation, so do not memorise a rate as fixed.

PPF is a government-backed small savings scheme under the Public Provident Fund Scheme, 2019. Any resident individual can open one account. A guardian can open one for a minor, but the combined deposits for self and minor cannot exceed the yearly limit. Joint accounts are not allowed, and NRIs cannot open new accounts. The minimum deposit is ₹500 a year and the maximum is ₹1,50,000 a year. The tenure is 15 financial years, extendable in blocks of 5 years. The government notifies the interest rate every quarter. Interest is compounded yearly and credited at the end of the financial year.

PPF is liquid only in a limited way. Loans are allowed from the 3rd to the 6th financial year. Partial withdrawal is allowed from the 7th financial year, once a year, up to 50% of a reference balance. Premature closure is allowed only after 5 completed years and only on specified grounds, such as serious illness or higher education, with an interest penalty.

Both are tax-friendly. PPF is EEE: deposits qualify for Section 80C (old regime), interest is exempt and maturity is exempt. EPF is also largely exempt, but with conditions. Interest on employee contributions above ₹2.5 lakh a year is taxable, and the limit is ₹5 lakh if there is no employer contribution. Withdrawal before 5 years of continuous service is taxable. As an adviser, you match the product to the client's employment status, horizon and liquidity need.

Key formulas to remember

EPF employee contribution: Employee share = 12% × (Basic + DA); The whole amount goes to the EPF account. The wage base is basic plus DA (and retaining allowance), not gross pay.
EPF employer contribution split: Employer 12% = EPS 8.33% (on wages up to ₹15,000, max ₹1,250) + balance to EPF; EPS is capped at ₹1,250 a month. Everything else in the employer's 12% goes to the EPF account.
PPF deposit limits: Minimum ₹500 and maximum ₹1,50,000 per financial year; The limit is combined for self and minor accounts. Up to 12 instalments a year are allowed. Excess deposits earn no interest.
PPF tenure: 15 financial years, extendable in blocks of 5 years; The year of opening counts as the first year. Maturity falls at the end of the 15th financial year.
PPF loan window: Loan: 3rd to 6th financial year, up to 25% of balance at end of the second preceding year; Only one loan is allowed at a time. The loan must be repaid for another to be taken.
PPF partial withdrawal: From 7th financial year: up to 50% of the lower of balance at end of the 4th preceding year or the immediately preceding year; Only one withdrawal per financial year.
PPF tax status: EEE: deposit (80C, old regime), interest and maturity are all exempt; Interest is tax-free in full, with no cap, for a PPF account.
EPF tax limits: Employee contribution above ₹2.5 lakh a year (₹5 lakh if no employer contribution): interest on the excess is taxable; Withdrawal is tax-free after 5 years of continuous service. Below 5 years it is taxable, and TDS applies above ₹50,000.

How to solve Employees' Provident Fund and Public Provident Fund questions

Use the same checklist for any EPF or PPF question. It stops you from mixing up the two schemes.

1Identify the scheme from the wording. Salaried and mandatory points to EPF. Voluntary, any resident and 15 years points to PPF.
2Note what the question tests: contribution, interest, withdrawal, lock-in or tax.
3For EPF contribution questions, find the wage base first (basic + DA). Then apply 12%, and split the employer share into EPS (8.33% on up to ₹15,000) and EPF.
4For PPF limit questions, check the yearly minimum and maximum, and remember that deposits for a minor count within the same limit.
5For PPF withdrawal questions, count financial years carefully. The year of opening is year 1. Then pick loan (3rd to 6th), partial withdrawal (7th onwards) or premature closure (after 5 years, specified grounds).
6For tax questions, apply the exemption rule and its condition: 5 years of continuous service for EPF, and EEE for PPF.
7Calculate the answer, then check each option for a trap such as a wrong base, wrong year or wrong percentage.

Quickest way: Four-line EPF vs PPF check

When to use it: Use this for theory MCQs that ask you to pick the correct or incorrect statement about EPF or PPF.

Recall EPF as 12% + 12%, with employer's 8.33% going to EPS on wages up to ₹15,000 (max ₹1,250).
Recall PPF as ₹500 to ₹1,50,000, 15 years, loan in years 3 to 6, partial withdrawal from year 7.
Recall tax as PPF fully EEE, and EPF tax-free after 5 years of continuous service with a ₹2.5 lakh interest cap.
Eliminate any option that mixes the two schemes, for example PPF with an employer contribution or EPF with a 15-year lock-in.

Common mistakes in Employees' Provident Fund and Public Provident Fund

Calculating EPS as 8.33% of the full basic salary.
Students remember the percentage but forget the ₹15,000 wage ceiling for EPS.
Fix: Apply 8.33% to wages up to ₹15,000 only. The monthly EPS amount is at most ₹1,250. The rest of the employer's 12% goes to EPF.
Thinking the employee's 12% is also split between EPF and EPS.
Students mix up employer and employee shares.
Fix: The employee's entire 12% goes to EPF. Only the employer's share is split.
Counting PPF years from the date of deposit instead of financial years.
Students think in calendar years or months.
Fix: Count financial years. The year of opening is the 1st year, and maturity is at the end of the 15th financial year.
Allowing PPF partial withdrawal from the 5th year.
Students confuse it with the 5-year point for premature closure.
Fix: Partial withdrawal starts in the 7th financial year. After 5 years only premature closure on specified grounds is possible. Loans are for years 3 to 6.
Saying EPF interest is fully tax-free in every case.
Students over-generalise the EEE status of PPF.
Fix: EPF interest on employee contributions above ₹2.5 lakh a year (₹5 lakh if no employer contribution) is taxable. Withdrawal before 5 years of continuous service is also taxable.
Treating the PPF rate as fixed for the whole tenure.
Students link it to fixed deposit thinking.
Fix: The government notifies the PPF rate every quarter, and the account earns the rate in force. It is not locked at opening.

Worked examples

Example 1

Meera earns basic plus DA of ₹40,000 a month. Her employer follows the standard 12% contribution on actual wages, with EPS contribution on the ₹15,000 ceiling. Find the monthly amount credited to her EPF account.

Show the solution

Employee contribution = 12% × ₹40,000 = ₹4,800. All of it goes to EPF.
Employer contribution = 12% × ₹40,000 = ₹4,800.
EPS share = 8.33% × ₹15,000 = ₹1,249.5, which is taken as ₹1,250 (the monthly cap).
Employer's amount to EPF = ₹4,800 − ₹1,250 = ₹3,550.
Total credited to EPF = ₹4,800 + ₹3,550 = ₹8,350.

Answer: ₹8,350 a month goes to the EPF account. ₹1,250 goes to EPS.

Example 2

Rohit opened a PPF account in financial year 2018-19. In 2024-25 he wants a partial withdrawal. His balance at the end of 2020-21 was ₹5,00,000 and at the end of 2023-24 was ₹8,00,000. What is the maximum he can withdraw?

Show the solution

Count years: 2018-19 is year 1, so 2024-25 is year 7. Partial withdrawal is allowed from the 7th year, so he is eligible.
The 4th year preceding 2024-25 is 2020-21, with balance ₹5,00,000. The immediately preceding year is 2023-24, with balance ₹8,00,000.
Take the lower balance: ₹5,00,000.
Maximum withdrawal = 50% × ₹5,00,000 = ₹2,50,000.

Answer: Rohit can withdraw up to ₹2,50,000, once in that financial year.

Exam tips

Expect trap options that swap numbers: 8.33% vs 3.67%, ₹1,250 vs ₹15,000, year 5 vs year 7.
Read whether the question asks about the employee share, employer share or total. The splits differ.
In PPF questions, always count financial years, with the year of opening as year 1.
For tax statements, look for the condition word: 5 years of continuous service, ₹2.5 lakh limit, old regime for 80C.
With negative marking of 25% of the question's marks, skip a question only if you cannot remove at least two options.

Practice questions from Retirement Products

Employees' Provident Fund and Public Provident Fund in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Employees' Provident Fund and Public Provident Fund: frequently asked questions

What is the difference between EPF and PPF?

EPF is for salaried employees and is mandatory for covered establishments, with contributions from both employee and employer. PPF is voluntary, open to any resident individual, and has no employer contribution. PPF has a 15-year tenure and a ₹1,50,000 yearly limit.

How is the employer's EPF contribution split?

The employer pays 12% of basic plus DA. Of this, 8.33% goes to the Employees' Pension Scheme on wages up to ₹15,000, which is at most ₹1,250 a month. The balance goes to the EPF account.

What are the PPF withdrawal rules and lock-in period?

The lock-in is 15 financial years. Loans are allowed from the 3rd to the 6th year. Partial withdrawal is allowed from the 7th year, once a year, up to 50% of the reference balance. Premature closure after 5 years needs a specified ground.

Is EPF withdrawal taxable?

Withdrawal after 5 years of continuous service is tax-free. Before that it can be taxable, and TDS may apply on larger amounts. Interest on the employee's contribution above the yearly limit is also taxable.

Can the PPF account be extended after 15 years?

Yes. You can extend it in blocks of 5 years, with or without further contributions. Check the scheme conditions for the withdrawal limits that apply during an extension.