For many of us, the contributions made to the Employees' Provident Fund (EPF) are one of the first savings and investment vehicles. This a retirement benefit scheme governed by Employee Provident Fund Organisation (EPFO) where employees and employers contribute towards the fund. As per the current rules set by the EPFO, any organisation which has more than 20 workers must mandatorily create EPF accounts for its employees earning ₹15,000 or less.
The contributions made to the provident fund from you as well as your employer can eventually grow into a sizeable sum that can be beneficial for you after retirement. Read on to know how to calculate your provident fund contribution every month.
How Is EPF Contribution Calculated?
The EPF contribution for every employee can be split into two broad categories:
Your own (employee’s) contribution
Employer’s contribution
Let’s understand each of these in detail.
Employee Contribution To EPF
As per the current rules, the employee’s share in the EPF contribution must be 12% of his or her basic monthly salary along with the dearness allowance.
For example: If your basic salary is ₹15,000 per month, your EPF contribution will be 12 % of ₹15,000, which amounts to ₹1,800.
Employer Contribution To EPF
The employer must also make an equal contribution of 12% towards the employee’s PF. However, the entire 12% of the employer’s share does not go into the employee’s PF account. The employer’s contribution can further be divided into two categories:
The employer must contribute 8.33% of the employee’s basic salary towards the Employee Pension Scheme.
The remaining 3.67% of the employer’s PF contribution goes towards the employee’s EPF.
Therefore, if your basic salary is ₹15,000 per month, the total contribution to your EPF account every month will be ₹1,800+₹550, which will amount to ₹2,350 in this case.
EPF Interest Rate And Calculation
The current interest rate for the EPF for the year 2022-23 stands at 8.10%. However, this EPF interest is not applied at the end of the year. The interest towards your EPF contributions is calculated at the end of every month and then deposited into your EPF account at the end of the financial year.
For example, if the EPF contribution in the first month is ₹2,350, the same amount will also be contributed to the EPF account in the second month. So, the total amount in the account will stand at ₹4,700 at the end of two months. Now, if the yearly EPF interest rate is 8.10%, the interest rate per month would be 8.10/12, which is 0.675%.
Therefore, 0.675% of ₹4,700 will be ₹31.72, which will be the monthly interest calculated on your EPF balance for the second month. This interest amount will keep on increasing as the monthly contributions get accumulated over the financial year. At the end of the financial year, the total accumulated interest amount will be deposited in your EPF account.
This is how your EPF contribution and EPF interest amount are calculated manually. If you wish to check your EPF balance, here are four ways to check your PF balance online.
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