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Gen Z workers should know that the choices made in those early months of their first job can quietly shape long-term stability in the future
While EPF is primarily structured as a retirement instrument, partial withdrawals are permitted under specific circumstances. (AI Image)
For Gen Z workforce, the first job is no longer just a salary slip, it is a decisive step towards financial independence. The choices made in those early months of employment can quietly shape long-term stability. Among the most significant yet often misunderstood benefits available to private sector employees is the Employee Provident Fund (EPF), a government-backed retirement savings scheme designed to ensure financial security in later years.
Under existing rules, EPF enrolment is mandatory for employees working in establishments with 20 or more staff members if their basic salary plus dearness allowance (DA) is up to Rs 15,000 per month. In such cases, employers are required to register employees under the scheme from the very first salary cycle. The structure functions as an automatic savings mechanism, building a retirement corpus without requiring any additional action from the employee.
Both the employee and the employer contribute equally to the fund. Every month, 12% of the employee’s basic salary and DA is deposited into the EPF account, matched by an equivalent 12% contribution from the employer. A portion of the employer’s contribution is diverted to the Employee Pension Scheme (EPS), while the remaining amount accumulates in the EPF account.
Over time, this dual contribution significantly strengthens the retirement corpus. Contrary to a common perception among young earners, it is not merely a salary deduction, the employer’s matching share plays a crucial role in wealth creation.
The savings parked in EPF earn annual interest declared by the government. For the current financial year, the interest rate stands at 8.25%, a return that outpaces many traditional bank savings accounts and fixed deposits. If an employee completes five consecutive years of service, the interest earned becomes tax-free, enhancing the long-term benefit. With compounding over decades, even modest monthly contributions can translate into a substantial retirement fund.
Upon enrolment, each member is allotted a Universal Account Number (UAN), which remains unchanged throughout their career, irrespective of job changes. The UAN enables employees to monitor their balance online, download passbooks, and seamlessly transfer funds when switching employers. The system ensures continuity, keeping retirement savings consolidated under one umbrella.
While EPF is primarily structured as a retirement instrument, partial withdrawals are permitted under specific circumstances. Members may access funds for purposes such as purchasing a home, medical emergencies, marriage, or higher education, subject to prescribed conditions. This flexibility provides a financial cushion during major life events without dismantling long-term savings entirely.
However, early withdrawal carries tax implications. If funds are withdrawn before completing five years of continuous service, the amount may become taxable. No tax deducted at source (TDS) applies to withdrawals up to Rs 50,000. For higher amounts, a 10% TDS is levied if the Permanent Account Number (PAN) is furnished; in its absence, the deduction can rise to 20%. Financial advisors caution young employees against premature withdrawals without fully understanding these provisions.
As a government-backed scheme, EPF is widely regarded as a low-risk investment vehicle, insulated from stock market volatility. For those beginning their careers, disciplined participation in EPF over 25 to 30 years can build a robust retirement corpus. The modest deductions visible on today’s salary slip may ultimately form the bedrock of tomorrow’s financial security.
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February 20, 2026, 19:00 IST
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