Saying no to EPF isn’t easy—but it’s possible

The answer isn’t straightforward. While Mr. A has the choice to opt out, Mr. B doesn’t—thanks to the rules governing EPF eligibility.

The fine print of opting out

Most new employees can opt out of EPF if their basic salary, as defined by the EPF Act, exceeds ₹15,000 per month. However, those earning less than this threshold are automatically enrolled and must contribute. Once an employee becomes an EPF member, there is no way to opt out later—even if their salary increases beyond ₹15,000. This means Mr. B is locked in, regardless of future salary hikes.

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The Employees’ Provident Fund Organization (EPFO) clarifies that employees earning more than ₹15,000 in basic salary are not required to join the scheme—provided they are not already members. However, if both employer and employee agree, they can voluntarily opt in by submitting a request under Para-26 (6) of the PF Scheme.

In practice, most employers enroll new hires by default and rarely inform them of the opt-out option. Those who wish to avoid EPF contributions must act at the time of joining by filling out Form-11 and selecting ‘no’ in the seventh and eighth sections—confirming they have never contributed to the EPF or Employee Pension Scheme (EPS). Miss this window, and there is no turning back.

There is, however, one way out. Employees who leave their job and stay out of formal employment for at least 60 days—ensuring no EPF contribution for two months—can withdraw their accumulated balance in full. This waiting period does not apply to women who leave their jobs for marriage.

“Upon full and final withdrawal of your EPF and EPS balances, your account is settled and closed. If you subsequently join an establishment where your basic salary exceeds ₹15,000 per month, you may opt out of EPF at the time of joining, provided you had withdrawn your EPF balance in accordance with Para 69 (5) of the PF scheme,” said Adarsh Vir Singh, founder of Nidhi Niyojan, and a veteran in provident fund matters.

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What if your employer doesn’t allow opting out?

Technically, an employer cannot enroll you in EPF without your consent if you are eligible to opt out. But in reality, many companies make PF contributions mandatory for all employees, leaving no room for opting out.

“Some companies have internal policies of making PF contribution mandatory for all their employees. As a result, their compensation structure doesn’t offer any option to the employees to opt out of EPF,” said Anurag Jain, co-founder and partner at ByTheBook Consulting LLP.

What about companies with PF trusts? In the context of provident fund contributions, employers fall into two categories: exempted and non-exempted. Exempted employers manage private PF trusts, while non-exempted employers contribute directly to the EPF. Companies with private PF trusts operate under their own policies, as defined by the trust’s rules. If these policies mandate PF contributions for all employees, the option to opt out simply does not exist.

The EPF scheme provides the definition of ‘excluded employees’ and covers employees drawing more than ₹15,000 monthly ‘salary’. In the case of PF trust, rules of the exempted employer doesn’t provide for such a definition. It means employees of such organizations have to contribute to PF with no option of opting out,” said Singh.

What to consider before opting out

Under the EPF Act, employers are required to match an employee’s contribution, which is 12% of the basic salary, up to a prescribed limit of ₹15,000. For those earning above this threshold, two scenarios arise. Some employers cap their contribution at 12% of ₹15,000 ( ₹1,800 each from both employer and employee), while others contribute based on actual basic salary.

“If your basic salary is ₹1 lakh, in the first scenario, both the employer and employee contribution will be restricted to 12% of ₹15,000, that is, ₹1,800 each. In the second scenario, by filing a joint request with the EPFO, both employer and employee can contribute 12% of your actual basic pay of ₹1 lakh, that is, Rs. 12,000 each,” explains Singh.

Employees can voluntarily contribute more in a voluntary provident fund, but employers are not obligated to match that amount, he said.

Before opting out, it’s crucial to understand your employer’s contribution policy. If your company contributes 12% of your actual basic salary, choosing to opt out means forfeiting that amount. But there’s another layer to this—whether the employer’s PF contribution is included within your CTC (cost to company) or is over and above it.

“Employers may structure your salary in a way that their contribution becomes a part of your CTC. If that happens, you’ll get that amount in hand if you opt out. If it is over and above your salary, you will lose out on it after opting out,” says Jain of ByTheBook Consulting LLP.

Opting out also means forgoing insurance benefits. EPF membership includes coverage under the Employees’ Deposit-Linked Insurance Scheme (EDLIS), which provides a lump sum of up to ₹7 lakh to an employee’s beneficiaries in case of an untimely demise. Without EPF, this protection is lost.

Another key factor is EPF’s high interest rate, which compounds annually. For FY25, the EPFO offers 8.25%, a return that few other fixed-income instruments can match.

Vishwanath B.G., associate director at Mercer Wealth India, warns that opting out could impact long-term financial security. “If someone is opting out of EPF, they may not be able to build a retirement kitty. They will lose out on high interest rate and taxation benefits and also non-refundable loans in case of contingencies. The entire accumulation including interest is tax free,” he explains.

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This tax advantage holds only while you’re with an EPF-covered employer. If you switch to a smaller firm or become self-employed, the interest earnings become taxable—diminishing one of EPF’s biggest benefits.