EPF, VPF and PPF: how each works, current rates, tax and withdrawal rules
Short answer. EPF is the compulsory retirement account for salaried employees: 12% of wages from you and 12% from your employer, earning the 8.25% declared for FY 2025-26. VPF is an extra voluntary contribution into the same account, at the same rate, with no employer match. PPF is a 15-year government savings account open to any resident individual: ₹500 to ₹1.5 lakh a year, at 7.1% for July–September 2026, with tax-free interest. Interest on your own EPF and VPF contributions above ₹2.5 lakh a year is taxable. On 16 September 2026 the Cabinet approved raising the EPF wage ceiling from ₹15,000 to ₹25,000 a month.
EPF vs VPF vs PPF: what is the difference?
All three are government-backed, fixed-income ways to save for the long term. They differ in who can use them, who sets the rate, how long money is locked in and how the interest is taxed.
| EPF | VPF | PPF | |
|---|---|---|---|
| Who can use it | Employees of covered establishments | EPF members | Any resident individual; one account each |
| Contribution | 12% of wages from you, 12% from the employer | Anything above your 12%, up to 100% of basic pay plus DA; no employer match | ₹500 to ₹1.5 lakh a financial year |
| Interest rate | 8.25% for FY 2025-26 | Same as EPF | 7.1% for Jul–Sep 2026 |
| Who sets the rate | EPFO's Central Board each year, with the Finance Ministry's concurrence | Ministry of Finance, every quarter | |
| Tenure | Until retirement; full withdrawal from age 55 | 15 financial years, extendable in 5-year blocks | |
| Deduction for what you put in | Section 123 of the Income-tax Act, 2025 (formerly 80C), within ₹1.5 lakh, old regime only | ||
| Tax on interest | Exempt, except interest on own contributions above ₹2.5 lakh a year | Exempt | |
| Tax on withdrawal | Exempt after 5 years of continuous service | Exempt | |
Rates are declared, not market-linked, and can change. The EPF rate for FY 2026-27 has not been declared.
How does EPF work? A contribution example
Each month you contribute 12% of your wages and your employer contributes another 12%. Your share goes entirely to your EPF balance. The employer's share is split: 8.33% of wages up to the wage ceiling goes to the Employees' Pension Scheme (EPS), and the rest goes to your EPF balance. The employer also pays for life cover under the EDLI scheme, which pays a nominee up to ₹7 lakh.
The rules sit in the new Employees' Provident Funds Scheme, 2026, which replaced the 1952 scheme from 1 July 2026 under the Code on Social Security. Under the labour codes in force since 21 November 2025, "wages" means basic pay, dearness allowance and retaining allowance; if other allowances exceed 50% of total remuneration, the excess is added back to wages — which is why many salary structures now carry a higher basic.
| Basic pay + DA of ₹50,000 a month | Ceiling ₹15,000 | Ceiling ₹25,000 |
|---|---|---|
| Your contribution (12%) | ₹6,000 | ₹6,000 |
| Employer's contribution (12%) | ₹6,000 | ₹6,000 |
| — of which to EPS (8.33% of the ceiling) | ₹1,250 | ₹2,083 |
| — of which to your EPF balance | ₹4,750 | ₹3,917 |
| Added to your EPF balance each month | ₹10,750 | ₹9,917 |
Working: 8.33% × ₹15,000 = ₹1,250; 8.33% × ₹25,000 = ₹2,083. This assumes the employer contributes on full basic pay and that you are an EPS member; under the rule carried over from September 2014, someone who first joins on wages above the ceiling is not enrolled in EPS, and the employer's whole 12% goes to EPF. An employer may instead limit contributions to the ceiling: 12% × ₹15,000 = ₹1,800 a month each, or ₹3,000 on a ₹25,000 ceiling. The second column assumes the new ceiling is applied to EPS in the same way [VERIFY: await the notification].
What changes with the ₹25,000 EPF wage ceiling?
On 16 September 2026 the Union Cabinet approved raising the wage ceiling for mandatory EPFO coverage from ₹15,000 to ₹25,000 a month — the first revision since September 2014. The government expects more than 51 lakh additional employees to be covered, and estimates its own annual outgo at about ₹11,339 crore.
- Who is affected first: employees earning between ₹15,000 and ₹25,000 a month, who until now could be left out of EPF when they joined. Coverage becomes mandatory, so 12% of wages is deducted from pay and the employer adds 12%.
- What it may mean above ₹25,000: where an employer limits contributions to the ceiling, the minimum rises from ₹1,800 to ₹3,000 a month each. A higher ceiling also means a higher pensionable wage under EPS, and a smaller part of the employer's share reaching the EPF balance, as the table shows.
- What is not yet confirmed: the Cabinet release says the Labour Ministry and EPFO "will undertake the necessary statutory and administrative steps". Several reports give 17 September 2026 as the effective date. [VERIFY: gazette notification, effective date, and how the ceiling applies to EPS membership and to existing members.]
What is VPF, and who can use it?
The Voluntary Provident Fund is not a separate product. It is a standing instruction to your employer to deduct more than the mandatory 12% and credit it to your EPF account. It earns the EPF rate and follows EPF's withdrawal and tax rules. The employer does not match it. The 2026 Scheme states that voluntary contributions can be reduced or stopped at any time, though payroll teams often accept changes only at set points in the year.
Is EPF interest taxable?
Mostly not. Interest is exempt except on the part of your own contributions — EPF plus VPF — that exceeds ₹2.5 lakh in a financial year. The limit is ₹5 lakh where the employer does not contribute, as in the government's GPF. Since FY 2021-22, EPFO keeps the excess in a separate taxable account. Interest on that account is taxed at your slab rate as income from other sources, and tax is deducted at source at 10% once the taxable interest crosses ₹5,000 in a year.
| Example: basic pay of ₹1,50,000 a month, plus VPF of ₹10,000 a month | Amount |
|---|---|
| Your EPF contribution for the year (12%) | ₹2,16,000 |
| Your VPF for the year | ₹1,20,000 |
| Total own contribution | ₹3,36,000 |
| Excess over ₹2.5 lakh, held in the taxable account | ₹86,000 |
| A full year's interest on the excess at 8.25% | ₹7,095 |
| Tax on it at 31.2% (30% slab plus cess) | ₹2,214 |
On that slice, the return after tax is 8.25% × (1 − 0.312) = 5.68% at the 30% slab, or 6.53% at the 20% slab. Interest on everything under the limit stays exempt. Without VPF, your own 12% crosses ₹2.5 lakh a year only when basic pay exceeds about ₹1,73,600 a month. The employer's share does not count towards the limit.
Withdrawals are exempt after five years of continuous service; service with earlier employers counts if you transferred the balance through your UAN. Before that, the withdrawal is taxable, with tax deducted at 10% on withdrawals of ₹50,000 or more.
What are the EPF withdrawal rules in 2026?
The 2026 Scheme folds the old list of thirteen advance provisions into a simpler set, as approved by EPFO's Central Board in October 2025.
- Partial withdrawal: after 12 months of membership, for illness, education, marriage, housing and special circumstances, provided at least 25% of your contributions stays in the account. Reports of the Board's decision put the limit at up to 100% of the eligible balance, with education withdrawals allowed up to 10 times and marriage up to 5 times.
- Full withdrawal: on retirement after 55, permanent and total incapacity, or permanent migration abroad. In other cases — including unemployment — the full balance can be withdrawn only 12 months after leaving employment (it was two months earlier).
- EPS: a member who leaves before qualifying for a pension can take the withdrawal benefit only after 36 months. A monthly pension needs at least 10 years of pensionable service and normally starts at 58.
- Inoperative accounts: if a balance that has become payable on retirement, migration or death is not claimed within 36 months, it stops earning interest.
How does PPF work, and how is PPF interest calculated?
A PPF account can be opened at a post office or an authorised bank. You deposit between ₹500 and ₹1.5 lakh in a financial year. Interest is calculated each month on the lowest balance between the close of the 5th and the end of the month, and credited once a year on 31 March. A deposit made on 6 April therefore earns nothing for April: on ₹1.5 lakh at 7.1%, that is ₹887 lost.
How is the PPF year calculated? The account matures after 15 complete financial years from the end of the year in which it was opened. An account opened in September 2026 (FY 2026-27) matures on 1 April 2042, so it accepts 16 years of deposits.
| 15 yearly deposits, at a constant 7.1% (an assumption — the rate is reset quarterly) | Deposited | Balance at the end |
|---|---|---|
| ₹1.5 lakh by 5 April each year | ₹22.50 lakh | ₹40.68 lakh |
| ₹12,500 by the 5th of every month | ₹22.50 lakh | ₹39.45 lakh |
| Continue ₹1.5 lakh a year for one 5-year extension (20 deposits) | ₹30.00 lakh | ₹66.58 lakh |
| Extend for 5 years without further deposits | ₹22.50 lakh | ₹57.33 lakh |
Working for row one: ₹1.5 lakh × [(1.07115 − 1) ÷ 0.071] × 1.071 = ₹40.68 lakh.
Access. A loan is available from the 3rd to the 6th financial year. One partial withdrawal a year is allowed from the 7th financial year, up to 50% of the balance at the end of the fourth year before the withdrawal or of the preceding year, whichever is lower. Premature closure is allowed after five years on specified grounds such as serious illness or higher education, with interest cut by 1 percentage point. After maturity the account can be extended in 5-year blocks with deposits, or left to earn interest without them. A PPF balance cannot be attached under a court order.
Do these deductions work in the new tax regime?
No. Your EPF contribution, VPF and PPF deposits qualify under Section 123 (formerly 80C) only in the old regime, within the combined ₹1.5 lakh limit — worth up to ₹46,800 of tax at the 30% slab. In the new regime there is no deduction, but the interest keeps the same tax treatment as above. Test both in the tax regime calculator.
Which questions should I ask before adding more to VPF or PPF?
- Is my emergency fund complete? Neither product is quick to reach.
- Will my own EPF plus VPF cross ₹2.5 lakh this year? What is the after-tax rate on the excess?
- Am I in the old regime, where the deposit also earns a deduction, or the new one?
- Both rates are reset by the government. Would I still want the product at a lower rate?
- How much of my long-term money is already in fixed income through EPF?
Related reading
- NPS after the 2025 exit-rule changes
- How much retirement corpus do I need?
- First salary: a money checklist
- Retirement calculator · Lumpsum calculator
FAQ
What is the maximum amount in PPF?
How is PPF interest calculated?
Is EPF interest taxable?
Can I withdraw my full PF after leaving a job?
Is VPF better than PPF?
What happens to PPF after 15 years?
Sources: PMIndia — Cabinet approves EPFO wage ceiling of ₹25,000 (16 Sep 2026); KPMG — EPF, EPS and EDLI Schemes, 2026 (2 Jul 2026), G.S.R. 525(E) of 29 Jun 2026; DD News — new EPF Scheme (2 Jul 2026); SCC Online — EPFO Central Board decisions (13 Oct 2025); Akashvani News — EPF rate, FY 2025-26 and EPFO; PIB — labour codes and the definition of wages (21 Nov 2025); ClearTax on tax on EPF interest, EPF withdrawal and TDS and VPF; National Savings Institute — PPF; Business Today — small savings rates, July–September 2026; ClearTax on PPF and PPF withdrawals. All checked 19 Sep 2026.
Education only. This article does not recommend any product or asset allocation and is not investment or tax advice for your situation. Spotted an error? Write to us.
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