For most salaried people in India, two government run schemes hold the largest share of long term savings long before any fund does: the Employees' Provident Fund, with its voluntary top up, and the Public Provident Fund. Both pay a rate the Government sets, both lock money in for years, and both carry tax rules that changed in 2026. This is education, not advice for your money. Every rate, limit and rule below carries its source and date, and applies to FY 2026-27 unless stated.
- Wage ceiling₹25,000 a month from 17 Sep 2026 sets the wages that must attract contributions.
- 12% eachEmployee and employer each pay 12% of wages.
- Employer split8.33% of wages up to the ceiling goes to the pension fund, the rest to your account.
- InterestRate set by the Government, worked on monthly balances, credited yearly.
- ExitFive years of service and the withdrawal rules decide what is taxed.
The EPF path in five steps. Sources are in each section below.
6By the end you can
- Say how the 12% employer share splits between the pension fund and your provident fund account, and why the wage ceiling matters.
- Work out what VPF adds, and the contribution level above which its interest becomes taxable.
- Read the EPF and PPF rates as declared, with the notification and its date, and tell a recommended rate from a notified one.
- Project a corpus in rupees, and see what the 5th of the month does to PPF interest.
- List the PPF rules: tenure, limits, extension blocks, loans and partial withdrawals.
- State which parts are taxed in FY 2026-27, in the old regime and in the new one.
3 terms this section turns on
What the EPF is and who it covers
The Employees' Provident Fund is a monthly savings account that the employer opens for each covered employee. Until June 2026 it ran under the Employees' Provident Funds Scheme, 1952. On 29 Jun 2026 the Ministry of Labour and Employment notified the Employees' Provident Funds Scheme, 2026 (G.S.R. 525(E)) under section 15 of the Code on Social Security, 2020, and it superseded the 1952 scheme from the date of publication (paragraph 1 of the 2026 scheme). The Employees' Pension Scheme, 2026 (G.S.R. 527(E), 29 Jun 2026) was notified the same day.
Check the date before the number: the ceiling was notified twice in 2026, on 29 May and on 17 Sep, and a guide written before 17 Sep 2026 may describe the first.
Read 2 more paragraphs, 135 words
Coverage turns on a wage ceiling. The 2026 scheme labels an employee whose wage, when he becomes entitled to join, exceeds the ceiling an "excluded employee" (paragraph 2); employee and employer can still opt in jointly, in writing, to contribute above it (paragraph 9(4)). The Central Government notifies the ceiling under the Code.
The notification of 17 Sep 2026, S.O. 5109(E), fixes the ceiling at ₹25,000 a month for Chapter III of the Code with effect from the date of publication. It supersedes S.O. 2702(E) of 29 May 2026. An employee earning ₹25,000 or less is inside the ceiling. A member whose wages later rise above it contributes on ₹25,000 only, unless both sides opt for the full wage, and a new joiner already above it is an excluded employee unless both sides opt in.
Contributions and how the employer share splits
Paragraph 18 of the 2026 scheme sets the rate: the employer pays 12% of the wages and the employee's contribution equals it. A class of establishments notified by the Central Government pays 10% instead. The employee's share is recovered by deduction from wages (paragraph 22). The employer may not recover its own share from the employee (paragraph 21), and pays both shares within fifteen days of the close of each month (paragraph 20).
| Per month | Wages ₹25,000 | Wages ₹60,000, full wage opted |
|---|---|---|
| Employee 12% | ₹3,000 | ₹7,200 |
| Employer 12% | ₹3,000 | ₹7,200 |
| To the pension fund (8.33% of ₹25,000) | ₹2,083 | ₹2,083 |
| Credited to the provident fund account | ₹3,917 | ₹12,317 |
Wages ₹25,000: the largest is Credited to the provident fund account at ₹3,917
Illustration from the Employees' Provident Funds Scheme, 2026 (paragraph 18) and the Employees' Pension Scheme, 2026 (paragraph 4). I read "wage ceiling notified by the Central Government" in paragraph 4(1) as the ₹25,000 of S.O. 5109(E). The operating circulars of the EPFO were not read.
Read 3 more paragraphs, 222 words
The employer's 12% does not all reach your provident fund account. Paragraph 4(1) of the Employees' Pension Scheme, 2026 takes a part of the employer's contribution, 8.33% of the employee's wages up to the notified wage ceiling, and remits it to the Pension Fund. The balance of the employer's share stays in the member's provident fund account. The pension fund is a separate pot with its own rules, and it is not part of the provident fund balance in your passbook.
The Central Government adds a third contribution to the pension fund. Paragraph 4(2) of that scheme sets it at 1.16% of the pay of pension scheme members, and G.S.R. 890(E) of 15 Oct 2026, in force from 17 Sep 2026, limits it to wages up to ₹15,000 a month. That money never touches your account either.
Here is the monthly arithmetic for two employees, using the 12% rate, the ₹25,000 ceiling and the 8.33% pension share. Paragraph 18 of the provident fund scheme requires each contribution to be rounded to the nearest rupee, with 50 paise or more counted up, so 8.33% of ₹25,000 (₹2,082.50) becomes ₹2,083. The second employee earns ₹60,000 and the employee and employer have opted jointly to contribute on the full wage. That is an assumption for the illustration; the 8.33% still applies to the capped wage.
VPF: additional voluntary contributions
The Voluntary Provident Fund is the common name for paragraph 19 of the 2026 scheme, "Additional voluntary contributions". An employee may contribute on wages above the ceiling at the statutory rate, or at any rate above it, and the employer transfers the money through the electronic challan. The total may not exceed the wages left after the deductions section 18(2) of the Code permits.
| Year | Taxable interest at 8.25% | Tax at 31.2% |
|---|---|---|
| 1 | ₹0 | ₹0 |
| 2 | ₹1,353 | ₹422 |
| 5 | ₹6,119 | ₹1,909 |
| 10 | ₹17,073 | ₹5,327 |
Illustration. ₹16,400 enters the taxable account at the end of each year and earns 8.25% on it; 31.2% is the 30% slab rate plus 4% cess. The declared rate changes every year, so real amounts will differ.
Read 4 more paragraphs, 237 words
The employer may match a voluntary contribution but has no obligation to. It pays additional administrative charges on the wages carrying voluntary money, and either side can cut or stop the amount at any time. The money sits in the same account and earns the same declared rate, because the interest paragraph (paragraph 42) covers every sum credited to the member.
Beyond the scheme's own limit, the practical ceiling on VPF is tax. Schedule II (Table: Sl. No. 4) of the Income-tax Act, 2025 makes interest taxable on the part of a person's contribution above ₹2,50,000 in a tax year where the employer also contributes, or above ₹5,00,000 where it does not. It applies to contributions made on or after 1 Apr 2021. Rule 277 of the Income-tax Rules, 2026 requires a taxable contribution account and a non-taxable one, and taxes the interest accrued in the taxable one.
A worked case. The ₹60,000 employee above pays ₹7,200 a month and adds ₹15,000 of VPF: ₹22,200 a month, ₹2,66,400 a year, which is ₹16,400 over the ₹2,50,000 line. That excess enters the taxable account, and its interest is taxed at slab rates.
The tax is small beside the interest on the first ₹2,50,000, which stays exempt. Whether VPF beyond that line is worth it is a comparison with the after tax return of the alternatives; module 11.2 sets out how debt fund gains and bond interest are taxed.
₹100 in Dynamic Asset Allocator became about ₹388 in the model
The EPF interest rate: how it is set
Paragraph 42 of the 2026 scheme says the Commissioner credits interest at a rate the Central Government determines in consultation with the Central Board. The same paragraph gives the method. Interest is worked on the monthly running balance, but credited once a year. A sum credited during the year earns interest from the first day of the month after its credit to the end of the year. A sum withdrawn earns interest up to the month before the withdrawal.
Read 3 more paragraphs, 132 words
That makes a three step process, and each step has a date:
So the rate for 2025-26 is notified, not just recommended: 8.25%, the same as 2024-25, which the same PIB release records. Until step 2 is done, the right word is "recommended". The rate for FY 2026-27 is declared after the year ends. As of 31 Oct 2026 no rate has been declared for it, so any figure for 2026-27 below is an assumption.
The scheme also says what happens to a member who withdraws in the current year: interest runs up to the date the final payment is authorised, at the last declared rate. If the rate declared later for that year is lower than the previous year's, the difference accrues as a bonus to outgoing members (paragraph 42(1)(b), provisos).
The EPF corpus over time
The interest rule has a clean form. Take a flat monthly credit c, credited at the end of each month, and an annual rate r. Interest for a year is r × (B + 5.5c): r on the opening balance B, plus r on 5.5 years' worth of one credit, because the first credit earns eleven months of interest, the second ten, and so on down to the last, which earns none, and 66 months in all is 5.5 years. The year end balance is then B × (1 + r) + c × (12 + 5.5r).
* ((1 + r)^n - 1) / r
c = monthly credit to the account
r = declared rate, e.g. 0.0825
| Years | ₹3,917 a month | ₹12,317 a month |
|---|---|---|
| 10 | ₹7,15,119 | ₹22,48,691 |
| 20 | ₹22,95,120 | ₹72,17,001 |
| 30 | ₹57,86,012 | ₹1,81,94,105 |
Computed from the formula above at a flat 8.25%. The amount credited over 30 years is ₹14,10,120 in the first column and ₹44,34,120 in the second, so most of the 30 year balance is interest on interest. The declared rate varies every year, and wages usually rise, so a real projection is a range.
Read 2 more paragraphs, 62 words
For the two employees above, with the 2025-26 rate held flat at 8.25%:
Ten more years take the first balance from ₹22.95 lakh to ₹57.86 lakh, because the last decade earns interest on the first two. A rate one point lower over 30 years would take the second balance from ₹1,81,94,105 to ₹1,50,91,023. Change the rate in the calculator to see it.
Tax on EPF: contributions, interest and withdrawal
The Income-tax Act, 2025 applies from tax year 2026-27, and the Finance Act 2026 (No. 4 of 2026, assent 30 Mar 2026) amended it from 1 Apr 2026. Four questions arise.
Read 4 more paragraphs, 339 words
The employee's contribution. Section 123 allows a deduction up to ₹1,50,000 for the sums in Schedule XV, which include an employee's contribution to a recognised provident fund (paragraph 1(f)). The limit is shared with PPF deposits, tuition fees, life insurance premia and the rest of the list. Section 202(2)(a)(xii) bars Chapter VIII deductions in the new regime, bar a few NPS and Agniveer provisions, so under the new regime the employee's contribution gets no deduction.
The employer's contribution. It is not a taxable perquisite up to ₹7,50,000 a year in aggregate across a recognised provident fund, the NPS scheme of section 124(1) and an approved superannuation fund (section 17(1)(h)). Above that, the excess and its interest are taxed as a perquisite. The Finance Act 2026 (section 127) also omitted the old rule that treated an employer contribution above 12% of salary as the employee's income, from tax year 2026-27. The Finance Bill memorandum gives the reason: the percentage limit overlapped the rupee ceiling.
The interest. Interest is exempt except in two cases: interest on the part of a contribution above ₹2,50,000 (₹5,00,000 with no employer contribution), which is the VPF rule above; and interest credited at a rate above the one the Central Government has notified, which paragraph 6 of Part A of Schedule XI, as substituted by the Finance Act 2026, deems income. I found no notified rate in the sources read, so I state the rule and no number.
The withdrawal. The balance is excluded from income if the employee has rendered continuous service with an employer for five years or more (Schedule XI, Part A, paragraph 8). Earlier employers count where the balance moved between recognised funds. It is also excluded where service ended through ill health, closure or contraction of the business or another cause beyond the employee's control, or where the whole balance moves to an NPS account. Otherwise paragraph 9 taxes it, and section 392(7) requires the fund to deduct 10% from a payment of ₹50,000 or more that is includible in income.
Withdrawals and transfers
The 2026 scheme rebuilt the withdrawal rules. Paragraph 46 allows partial withdrawals of at least ₹1,000 for stated purposes, subject to a minimum balance equal to 25% of all contributions credited to the member (both shares plus interest) up to the date of withdrawal. The "Eligible Member Balance" is the account less that minimum.
| Purpose | Limit | Condition |
|---|---|---|
| Illness of self or family | 100% of eligible balance | 12 months of membership |
| Education | 100% of eligible balance | 12 months; 10 times in all |
| Marriage | 100% of eligible balance | 12 months; 5 times in all |
| Housing | 100% of eligible balance | 12 months; 5 times in all |
| Special circumstances | 100% of eligible balance | 12 months; twice a financial year |
Two terms to hold on to from 20.4
Employees' Provident Funds Scheme, 2026, paragraph 46, in force from 29 Jun 2026. Housing covers purchase, construction, home loan repayment and renovation. Counts run afresh from the start of the 2026 scheme.
Read 2 more paragraphs, 122 words
Full withdrawal is paragraph 49. It is allowed on retirement after 55, on permanent and total incapacity, before migrating abroad, on retrenchment and under a voluntary retirement scheme. Otherwise the Commissioner may allow it on ceasing to be an employee, but only if the member has not been employed in a covered establishment for twelve continuous months before applying; a woman resigning to marry is exempt from the wait. Re-employment afterwards makes the member a fresh member.
Changing jobs needs no withdrawal. Paragraph 43 lets a member apply on the designated portal to move the balance to the new account. That is why the tax test counts earlier employers: a transfer keeps the five year clock running, and a withdrawal resets it.
PPF: the rules
The Public Provident Fund is not tied to an employer. It runs under the Public Provident Fund Scheme, 2019 (G.S.R. 915(E), 12 Dec 2019), made under section 3A of the Government Savings Promotion Act, 1873. The rules below are from the text of that scheme.
| Item | Rule |
|---|---|
| Accounts | One for an individual, one for each minor or person of unsound mind they guard; no joint accounts (paragraph 3) |
| Deposits | ₹500 to ₹1,50,000 a year in multiples of ₹50, for the person's own and the minor's account together (4, 5) |
| Discontinued | Miss the ₹500 in a year; revival costs ₹50 plus ₹500 for each missed year (6) |
| Interest | On the lowest balance between the close of the 5th and the end of the month; credited at year end (7) |
| Maturity | 15 years from the end of the year of opening (11) |
Public Provident Fund Scheme, 2019. Paragraph 7 of the text names 7.9%, which is not the rate in force; paragraphs 6(2) and 11(2) refer to the rate applicable from time to time, which the Government sets each quarter (next section).
Read 4 more paragraphs, 297 words
Extension. At maturity the holder can close the account (paragraph 11(1)); keep it open without deposits for any period, earning the scheme rate with one withdrawal of any amount a year, though after more than a year without deposits the right to resume them is lost (11(2), 11(3)); or extend with deposits in five year blocks by applying in Form 4 within one year of maturity (12). Miss that year and no deposits are accepted. In an extended block, total withdrawals are capped at 60% of the balance at the start of the block (12(4)).
Loans. A loan is possible after one year has passed from the end of the year of the first deposit and before five years have passed from it, so from the third to the sixth financial year. It is capped at 25% of the balance at the end of the second year before the year of application. One loan a year, and a fresh one only after repayment (paragraph 8). The principal is due within 36 months. Interest is 1% a year on the principal, paid after the principal is cleared; if the loan runs past 36 months, interest on the outstanding amount rises to 6% a year (paragraph 9).
Partial withdrawal. From the seventh financial year the holder may withdraw up to 50% of the balance at the end of the fourth year before the year of withdrawal, or at the end of the preceding year, whichever is lower. One withdrawal a year, and any loan must be cleared first (paragraph 10).
Premature closure. After five years, for treatment of a life threatening disease of the holder, spouse, dependent children or parents, for higher education, or on a change of residency status, with interest 1% below the rate credited (paragraph 13).
Where this section sits in module 20.4
The PPF rate and how to read it
The Department of Economic Affairs in the Ministry of Finance announces a rate for every small savings scheme each quarter by office memorandum. The memorandum dated 30 Sep 2026 (F.No.1/4/2019-NS) says the rates for 1 Oct to 31 Dec 2026 "shall remain unchanged" from those notified for 1 Jul to 30 Sep 2026. The memorandum of 30 Jun 2026 said the same of July to September against April to June. The Public Provident Fund rate in that run of quarterly tables is 7.1%, so the rate applying from 1 Oct to 31 Dec 2026 is 7.1% a year.
Read one more paragraph, 53 words
Two cautions follow. The 7.1% is set quarter by quarter, so a deposit made today earns whatever rate holds in each later quarter, not 7.1% for fifteen years. And paragraph 7 of the 2019 scheme text names 7.9%, a rate of December 2019: reading the scheme without the memoranda gives a stale figure.
PPF corpus projections in rupees
Interest is on the lowest balance between the 5th and the month end, so the date of a deposit matters. A deposit by the 5th earns that whole month; one after the 5th earns nothing until the next month. With a flat monthly deposit c, the year end balance is B × (1 + r) + c × (12 + 6.5r) when every deposit lands by the 5th, and B × (1 + r) + c × (12 + 5.5r) when each lands after it. A lump of ₹1,50,000 by 5 April earns twelve months in the year.
| Years | Lump by 5 April | ₹12,500 by the 5th | ₹12,500 after the 5th |
|---|---|---|---|
| 15 | ₹40,68,209 | ₹39,44,599 | ₹39,22,125 |
| 20 | ₹66,58,288 | ₹64,55,980 | ₹64,19,197 |
| 25 | ₹1,03,08,015 | ₹99,94,812 | ₹99,37,866 |
Computed at a flat 7.1%, the rate in force for 1 Oct to 31 Dec 2026 (DEA memorandum, 30 Sep 2026). Years 20 and 25 assume the account is extended in five year blocks with deposits, so deposits total ₹30,00,000 and ₹37,50,000.
Read 2 more paragraphs, 74 words
At ₹1,50,000 a year for 15 years the deposits total ₹22,50,000. The balances at a flat 7.1%:
The timing gap is about ₹22,500 over 15 years between depositing by the 5th and after it, and about ₹1.2 lakh between the lump and the monthly habit. A rate that is one point lower matters more: at 6.1% the lump balance after 15 years is ₹37,32,711, and at 8.1% it is ₹44,37,132, against ₹40,68,209 at 7.1%.
PPF loans and withdrawals in rupees
With ₹12,500 deposited by the 5th of every month at a flat 7.1%, the balance at the end of each financial year runs: ₹1,55,770 after year one, ₹3,22,597 after two, ₹5,01,270 after three, ₹6,92,629 after four, ₹8,97,575 after five and ₹11,17,071 after six.
- A loan in the third financial year can be at most 25% of the year one balance, ₹38,942. In the fourth year it is 25% of ₹3,22,597, which is ₹80,649.
- Repaid inside 36 months, ₹80,649 costs 1% a year on the principal, about ₹807 for each year it was out, paid after the principal is cleared.
- A first partial withdrawal in the seventh year takes the lower of the balance at the end of year three (₹5,01,270) and at the end of year six (₹11,17,071). Half of ₹5,01,270 is ₹2,50,635.
The tax treatment of the PPF
The PPF is usually called exempt, exempt, exempt: the deposit, the interest and the maturity. In FY 2026-27 the three parts have different standing. The deposit is a deduction under section 123 (Schedule XV paragraph 1(e), contribution to a provident fund set up and notified by the Central Government) up to the shared ₹1,50,000 limit, and only in the old regime, because section 202(2)(a)(xii) bars it in the new one. The interest and the maturity payment are excluded from income by Schedule II (Table: Sl. No. 3), which covers payments from a provident fund set up by the Central Government and notified. The Schedule II exclusions are not among those that section 202(2) withdraws in the new regime. So under the new regime a PPF deposit gets no deduction, and the interest and maturity stay exempt. The contribution thresholds that tax some EPF interest (₹2,50,000 and ₹5,00,000) cannot be reached in a PPF, whose ceiling is ₹1,50,000.
EPF and PPF side by side
| Item | EPF | PPF |
|---|---|---|
| Who | Employees of covered establishments | Any resident individual, one account |
| Amount | 12% of wages each side; VPF above | ₹500 to ₹1,50,000 a year |
| Rate set by | Central Government with the Central Board, yearly | Ministry of Finance, quarterly |
| Latest rate | 8.25% for 2025-26 (EPFO order, 1 Jul 2026) | 7.1% for 1 Oct to 31 Dec 2026 |
| Lock in | Partial withdrawals after 12 months, 25% kept | 15 years; loans years 3 to 6; withdrawal from year 7 |
| Interest tax | Exempt, except on contributions above ₹2,50,000 | Exempt |
| New regime | No deduction; interest rules unchanged | No deduction; interest exempt |
Sources: the sections above.
Common mistakes
- Treating the rate as fixed. EPF is declared yearly and PPF quarterly; a 15 year projection at today's rate is one scenario.
- Reading a recommendation as the rate. The Board's 2 Mar 2026 decision was a recommendation; the credit followed the Government's letter of 17 Jun 2026.
- Depositing in PPF after the 5th. It loses a month of interest, about ₹22,500 over 15 years on the monthly habit above.
- Withdrawing EPF before five years of service. The balance is taxable, with 10% deducted at source from ₹50,000 upwards.
How this fits the rest of the plan
I count EPF and PPF as debt when I look at a whole balance sheet, for the reason module 4.6 sets out: a rate the Government sets, with no market price to fall, behaves like a bond, and a plan that leaves it out misstates how much of the money is exposed to equity. The real return calculator shows either rate after inflation.
The regime you file under decides whether the section 123 deduction has any value: module 20.6 works the numbers, and the NPS, with its own contribution and exit rules, is in module 20.5.
Key takeaways
- The employer's 12% splits: 8.33% of wages up to the ceiling goes to the pension fund, the rest to the provident fund account. At ₹25,000 of wages that is ₹2,083 and ₹917.
- The wage ceiling is ₹25,000 a month from 17 Sep 2026 (S.O. 5109(E)); the Central Government's 1.16% pension contribution is limited to wages up to ₹15,000 (G.S.R. 890(E)).
- Interest on employee contributions above ₹2,50,000 a year (₹5,00,000 with no employer contribution) is taxable, which is where VPF meets tax.
- EPF paid 8.25% for 2025-26, approved 17 Jun 2026 and ordered 1 Jul 2026. Nothing is declared for 2026-27 yet.
- PPF pays 7.1% for 1 Oct to 31 Dec 2026, reset each quarter; a deposit by the 5th earns the whole month.
- PPF loans run from year 3 to year 6 at 25% of the balance two years back; partial withdrawal starts in year 7.
- In the new regime the EPF employee share and the PPF deposit get no deduction; PPF interest and maturity stay exempt.
Questions readers ask
Is the 8.25% EPF rate fixed for 2026-27?
No. The Central Board recommends a rate and the Government approves it after each year closes. For 2025-26 the Board recommended on 2 Mar 2026, the Government approved on 17 Jun 2026 and the EPFO ordered the credit on 1 Jul 2026. Nothing is declared for 2026-27 as of 31 Oct 2026.
Is PPF interest taxed in the new regime?
No. Schedule II of the Income-tax Act, 2025 excludes the interest and the maturity payment, and the new regime does not withdraw that exclusion. What the new regime removes is the deduction for the deposit.
Can a PPF account stay open after 15 years without deposits?
Yes. Paragraph 11(2) of the 2019 scheme lets the holder keep it open for any period with one withdrawal a year, and the balance keeps earning the scheme rate.
Rules and figures in this module were last verified on 31 Oct 2026. Tax and regulatory rules change; check the source before acting.
