EPF and gratuity are the two pieces of your salary you don't see every month but that can add up to lakhs. EPF builds up every month you work; gratuity is a lump sum your employer pays when you leave after enough years. Both changed in late 2025: EPF withdrawal rules were rewritten and the new labour codes widened gratuity. Here's how both work now.
How EPF contributions work
The Employees' Provident Fund (EPF) is compulsory for most employees whose basic + DA is up to ₹25,000 a month at joining (the ceiling was ₹15,000 until 17 September 2026), and many employers enrol everyone. Each month:
- You contribute 12% of basic + DA. It's deducted from your salary.
- Your employer also contributes 12%, but it's split. 8.33% goes to the Employees' Pension Scheme (EPS), capped at ₹2,083 a month (8.33% of the ₹25,000 wage ceiling; it was ₹1,250 before 17 September 2026). The rest goes to your EPF balance.
- Many employers calculate PF on only the ceiling (₹25,000) even if your basic is higher. That's allowed, and it's why two people with the same basic can have very different PF deductions.
EPF example: where your money goes
Basic + DA of ₹30,000 a month, PF on full basic
| Contribution | Per month | Goes to |
|---|---|---|
| Your 12% | ₹3,600 | EPF balance |
| Employer’s share to pension (capped) | ₹2,083 | EPS (pension) |
| Employer’s remaining share | ₹1,517 | EPF balance |
| Added to your EPF balance | ₹5,117 | Earns interest |
Over a year that's ₹61,404 into your EPF balance before interest, and ₹24,996 into the pension scheme. The pension part does not earn the EPF interest rate; it builds your right to a monthly pension after age 58 (if you complete 10 years) or a withdrawal benefit earlier.
EPF interest and tax
- Interest was 8.25% for FY 2025-26. It's declared each year and credited to your account once a year.
- Your contribution counts towards the ₹1.5 lakh 80C limit under the old regime.
- Interest on your own contribution above ₹2.5 lakh a year (₹5 lakh if your employer doesn't contribute) is taxable every year.
- Withdrawals after 5 years of continuous service are tax-free. Service with earlier employers counts if you transferred the account.
- Withdrawals before 5 years are taxable, and EPFO deducts TDS of 10% if the amount is over ₹50,000 (more if your PAN isn't linked).
EPF withdrawal rules since October 2025
In October 2025 the EPFO board simplified withdrawals. More than a dozen separate reasons were merged into three groups: essential needs (illness, education, marriage), housing, and special circumstances. The main rules now:
| Situation | What you can take out |
|---|---|
| Partial withdrawal while working | After 12 months of service, up to your eligible balance (your share plus employer’s share), but 25% of the balance must stay in the account |
| Education / marriage | Allowed several times over your career (up to 10 times for education and 5 for marriage) |
| You lose your job | Up to 75% straight away; the full balance after 12 months of being out of work |
| Pension (EPS) amount after job loss | Final withdrawal after 36 months out of work |
| Retirement (age 58) or permanent disability | The full balance |
EPFO keeps refining procedures. Before applying, check the current conditions in the "Online services" section of the EPFO member portal or the UMANG app, where most claims are now filed with Aadhaar OTP.
Changing jobs: transfer, don't withdraw
Your UAN (Universal Account Number) stays the same for life. When you join a new employer, give them your UAN and the old account is usually transferred automatically; if not, file a transfer claim online. Transferring keeps your service continuous, which matters for two reasons: withdrawals after 5 years are tax-free, and 10 years of EPS membership gets you a lifetime pension. Withdrawing at every job change resets both clocks and loses years of compounding.
Gratuity: who gets it and when
Gratuity is a thank-you payment for long service, required by law for establishments with 10 or more employees. You get it when you leave, whether you resign, retire or are laid off, if:
- You're a permanent employee with at least 5 years of continuous service, or
- You're a fixed-term employee with at least 1 year of service (new under the labour codes), or
- Service ends because of death or disablement, where there's no minimum period.
The employer must pay within 30 days of it becoming due. Gratuity can be withheld or forfeited only in narrow cases, such as dismissal for causing damage to the company's property (up to the amount of the loss), or for riotous or disorderly conduct, violence, or an offence involving moral turpitude.
The gratuity formula, step by step
Gratuity = Last drawn (basic + DA) × 15 ÷ 26 × completed years of service
- 15 ÷ 26 means 15 days' wages for each year, counting a month as 26 working days.
- Years: a part-year of more than 6 months counts as a full year. 7 years 8 months is 8 years; 7 years 5 months is 7.
- Ceiling: the maximum under the law, and the tax-free limit for private-sector staff, is ₹20 lakh over your whole career.
Worked example: 7 years 8 months, last basic + DA ₹60,000
Years counted: 8 (the 8 months round up).
Gratuity = ₹60,000 × 15 ÷ 26 × 8 = ₹2,76,923.
This is fully tax-free because it's under ₹20 lakh. Leaving at 4 years 5 months, a permanent employee would get nothing, while a fixed-term employee would get ₹60,000 × 15 ÷ 26 × 4 = ₹1,38,462.
What the labour codes changed
The four labour codes came into force on 21 November 2025. The Code on Social Security now covers PF and gratuity. Three changes matter most to employees:
- Fixed-term employees get gratuity after 1 year, on the same formula, instead of 5.
- The 50% wage rule. Allowances above half of total pay are added back into "wages". If your basic was kept low, gratuity is now calculated on a bigger number, and so is PF unless your employer calculates it only on the wage ceiling.
- Gig and platform workers are brought under social security schemes for the first time, funded by aggregators.
If your employer restructured your salary after November 2025, compare old and new payslips: take-home may have dipped slightly while PF went up. Our CTC vs in-hand guide shows the effect with numbers.
Notice Period & F&F Settlement CalculatorLeaving soon? Estimate your full and final settlement, including gratuity.Frequently asked questions
How much of my salary goes to EPF?
12% of your basic plus DA, and your employer adds another 12%. Of the employer’s share, 8.33% (capped at ₹2,083 a month since the wage ceiling rose to ₹25,000 on 17 September 2026) goes to the pension scheme and the rest to your EPF balance. Many employers calculate PF only on the ₹25,000 ceiling, which makes the deduction ₹3,000.
What is the EPF interest rate?
8.25% a year for FY 2025-26. The rate is declared every year by EPFO and the government, and interest is credited to your account annually.
Can I withdraw my full PF while I am still working?
No. Since October 2025, partial withdrawals are allowed after 12 months of service for needs like illness, education, marriage and housing, but 25% of your balance must remain in the account. The full balance is available on retirement, or after 12 months without a job.
Is EPF withdrawal taxable?
It is tax-free after 5 years of continuous service, including earlier jobs if you transferred the account. Before 5 years it is taxable, and TDS of 10% applies if the amount is over ₹50,000.
Do I get gratuity if I resign before 5 years?
If you are a permanent employee, generally no, except on death or disablement. Fixed-term employees qualify after 1 year under the labour codes. Some courts have counted 4 years and 240 working days as 5 years, but do not rely on it without checking with your employer.
Is gratuity taxable?
For private-sector employees, gratuity is tax-free up to ₹20 lakh over your career. Anything above that is taxed as salary. For government employees it is fully exempt.
Does gratuity count notice period?
Yes. Service up to your last working day counts, including the notice period you serve. A notice period bought out by the employer may not count, so check your relieving date.
My employer is not paying gratuity. What can I do?
Send a written request (Form I under the old rules) to the employer. If it is still not paid within 30 days, you can apply to the Controlling Authority, usually the Assistant Labour Commissioner, and you are entitled to interest on the delay.