EPF has been one of the prestigious and most sought after investments in India. Under the provident fund scheme, an employee at a government or private organization can create wealth through your working years in a company. The amount you receive earns interest regularly. This amount can be used to fund a part of post-retirement life plans and goals.
This could be owning a home or having a dream holiday. It is known that both the employer and the employee contribute to the provident fund. But how much each of them pays remains a question in our minds. So in this article, you will find detailed information on: What is the Contribution for Provident Fund both by the Employer & Employee?
EPF Contributions By The Employer & Employee
If your company has an employee strength of more than 20. Then, You and your employer are required to contribute12% of your basic pay salary into your EPF account monthly. If you are a women employee then you need to transfer only 8% of the basic pay.
But his happens only for the first 3 years of your service. In either of the case, your employer would continue to add 12% of the basic in your account. Furthermore, an organization with less than 20 employees or an establishment being a sick one( financially), then the EPF interest rate stands to be 10℅ for both you and your employer.
Moreover, a person is free to pay above 12℅ as a contribution to the PF. This is solely the decision of the employee. Yet the employee can’t exceed the 20% mark. But the employer contribution is always 12%. This implies employees can contribute above 12% but the employer doesn’t match your contribution.
Interest calculations On EPF Account
According to the current 2020-2021 budget, the interest rate stands to be 8.50% on your PF account. This interest rate is quite better as compared to other investment schemes. At the time of retirement or 2 months after changing the job, then you can apply to avail of the entire EPF capital. This can be availed into your bank account or EPF account of your successor company.
The interest is calculated on yearly basis. Although your contribution made is on monthly basis. At the beginning of a new financial year, the interest is calculated on past balance. This follows as opening balance (previous years) + total monthly contribution ( current year) + interest on the total( old opening balance and contribution).
Tax Benefits On PF Account
EPF provides a huge amount if you would as an employee for a period of time. Including a good interest, the EPF earnings are tax-free too. This has been amended under the section-80C. But you need to remember The amount remains to be tax-free if withdrawn only after 5 years of contribution. So if your service years are less than 5 years, then you would have to pay a tax on it.
Employer’s Contribution Sub-Division In EPF Account
But a word of caution, the 12% that your employer contributes in the EPF account doesn’t come fully to your account. Only a part of it is added to your actual EPF account. With this we should further look into sub-division of the basic EPF rate that the employer pays:
Firstly, comes in the Employee’s Provident Fund (EPF) that account to 3.67% out of the 12% that your employer pays
- Next is the Employee’s Pension Scheme (EPS) which is 8.33% of the basic pay.
- Employee’s Deposit Link Insurance Scheme (EDLIS) stands to .50% of the basic salary
- EPF Administration charges 1%
- Lastly, comes in EDLIS Administration charges which account for 0.01%
Recent Amendments On EPF Account Contribution
However, due to the COVID -19 pandemic, Employers can choose to pay only 10% of basic in their EPF account. But, the condition is only applicable for the months of May, June and July 2020. But it is their choice they can also continue to pay 12%.
Moreover, as per the employer is concerned the company can also choose anyone between 10% and 12%. A decrease in the EPF percentage contribution from either side or both would increase the in-hand pay. But the differential increase would be a taxable pay. For instance,
i. You and your employer both contribute 10% to the EPF
Let’s say that you opted to contribute 10% of the basic in your EPF account.If your employer does the same, then this would create a differential factor of 4% of the basic pay. This 4% will be awarded as take-home salary per month but it would be taxable.
b. You contribute 10% to the PF scheme whereas the employer plays 12% of the basic pay or vice-versa.
If you have a contribution of 12% to your EPF account. And your employer contributes 10% to the EPF account or vice-versa. Then a differential factor of 2% is created. This would be given as an in-hand salary. But remember this increase in-hand salary is taxable.
c. Both employer and the employee continue to contribute 12%.
This implies that there will be no change in the contribution. Hence, there is no increase in the in-hand salary. Yet, it would be better as contribution remains intact. And the interest amount earned would be higher. This interest earned would also be tax-free.
Contribution Calculation With An Example:
Let us see this calculation with an example:
Let say you have a basic pay of Rs.30,000 in your salary slip. Now let us see the division of the EPF contributions in detail:
Your contribution to EPF
- If you provide12% of your basic pay it would be about 3600 Rs that you will add to your EPF account.
- If you obliged to pay 10% then it would make up 3000Rs
- Furthermore, if you are a female within the above-mentioned tenure of your service then it would be about 2400 Rs.
Your employer’s contribution:
Considering the employer provides 12% to you.
- In accordance with the first, the employer contribution that is 3.67% would add 1101 Rs to your EPF account per month.
- Then comes in the EPS cut that is 8.33% which would make 2499 Rs in total. However, For EPS the highest amount on which it is to be calculated can’t exceed 15000. Therefore, your employer can only contribute 1249.5 Rs to the EPS. Don’t worry the extra that is (2499-1249.5=)
- 5 Rs is then added to your EPF account.
The rest of the sub-division amount is awarded to the EPF service. You don’t receive any amount from it to your EPF
So, the total contribution to your EPF account per month comes out to be :
- If your contribution is 12 % then (3600+1101+1249.5)=5950.5 Rs
- If your contribution is 10 % then (3000+1101+1249.5)=5350.5 Rs
- If your contribution is 8% then (2400+1101+1249.5)=4750.5 Rs
How Can You Check On The Contributions?
You can check the EPF account status and the percentage contribution. You check it by signing in to your EPFO member portal.
EPF is an employee provident fund for the salaried employee overseen by EPFO. They are widely considered as a retirement benefits scheme. It is used to be the employees to save a part of their salary. They are used by employees when they are unable to work in later stages of life. It churns a portion of your in-hand salary
EPF scheme is great for retirement funds. But after the article, you might think that the major of the contribution is yours. Also, this contribution reduces the in-hand salary that you have. But should remember EPF can be a great help to fulfill family responsibilities. And they are one of the safest and secure investments. They are definitely worth investigating. Nevertheless, the employer also pays a good amount to the EPF account of yours. And it’s well said, every penny worth’s counting.