The Provident Fund (PF) is a retirement savings scheme where a part of your salary is set aside every month to build a retirement corpus. A fixed portion of the salary is contributed to the PF account, with both the employee and employer putting in money.
EPF contributions are generally calculated on an employee's basic salary plus dearness allowance (DA), if applicable. If you know how much is deducted from your salary each month, you can plan your finances better.
Here's a simple look at how PF contributions are calculated and how much actually goes into your EPF account.
How much does an employee contribute?
The employee contributes 12% of basic salary plus DA towards EPF. This amount is deducted from the monthly salary.
For example, if an employee's basic salary and DA together amount to Rs 25,000, the employee's monthly PF contribution would be:
12% of Rs 25,000 = Rs 3,000
So, Rs 3,000 would be deducted from the employee's salary as their contribution.
Also Read | EPFO Members, Marriage Can Invalidate Your Nomination. Here's What You Need To Do
How much does the employer contribute?
The employer also contributes 12% of the employee's basic salary plus DA. However, the employer's contribution is divided between EPF and the Employee Pension Scheme (EPS).
For a salary of Rs 25,000:
3.67%, or Rs 917.50, goes towards the employee's EPF account.
8.33%, or Rs 2,082.50, goes towards the Employee Pension Scheme (EPS).
This means the employer's total contribution is Rs 3,000. But the entire amount does not go directly into the EPF account.
Also Read: | EPFO's New Aadhaar-Based Portal Helps You Find Forgotten PF Accounts. Here's How
How much goes into the EPF account?
In this example, the employee contributes Rs 3,000 and the employer adds Rs 917.50 to the EPF account. Therefore, the total amount credited towards EPF is Rs 3,917.50 per month.
The remaining Rs 2,082.50 from the employer's contribution goes towards EPS.
How is interest added?
Interest on the EPF balance is calculated monthly, but the interest amount is credited to the account at the end of the financial year.
Also Read: EPFO Alert: Beware Of Fake Links, Check Steps To Keep Your UAN, Financial Details Secure
Essential Business Intelligence, Sharp Market Insights, Practical Personal Finance Advice, Daily Fuel, Gold and Silver Prices and Latest Stories — On NDTV Profit.