Employee provident fund is a beneficial scheme for salaried employees. Read on to get an idea of how the employee provident fund is calculated.
Provident Fund calculation may seem tough but in reality it’s very easy. The Provident Fund (PF) is usually considered to be a retirement-oriented option for investment. It is mandatory for any employee who manages to attain a ₹15,000 threshold every month for provident fund contribution. The employee receives income-tax privilege on a provident fund contribution if it is under ₹1.5 lakh. The EPFO, or Employee Provident Fund Organisation, provides numerous benefits to employees. Know how to calculate PF on Salary and PF full form in salary
What is a Provident Fund?
Employee Provident Fund or EPF is a retirement scheme. Through the scheme, you can ensure that you have sufficient funds saved for your retirement period. Anyone who is working for a private or government organisation can take advantage of this scheme.
Nowadays, every company that has an employee count of more than 20 is required to sign up for the Provident Fund. Employees make a certain commitment to the Provident Fund program, while employers also meet that contribution each month. The Provident Fund Organisation, or EPFO, looks after the scheme.
The employee not only receives a large amount of payment at their retirement time, but they also get to use this amount during their service period. The amount also includes the interest and the employer’s contributions. The original sum and added interest are free from income tax, which makes this an attractive retirement scheme for employees.
The Provident Fund covers all organisations that have 20 or more employees. If an organisation fails to meet the necessary conditions, then they are covered with some exemptions and restrictions. The rate of interest for the Employee Provident Fund is reviewed every year. The current rate of interest is 8.10% for the financial year 2022-23.
How Many Divisions Are There In Employee Provident Fund Contribution? – PF full form in salary
There are two divisions in the Provident Fund contribution. Understand PF full form in salary for comprehensive financial insight.
EPF Contribution By The Employee:
- Female employees need to contribute 8 percent of their salary to their Employee Provident Fund. However, this is eligible only for the first 3 years. After the given duration, they need to contribute 10-12 percent of their base salary.
- Male employees need to contribute 8 percent of their general salary.
EPF Contribution By Employer:
- The employers need to contribute equally to the Employee Provident Fund, which is ten or twelve percent of their gross salary.
- The margin of contribution doesn’t change for female employers.
How is the Employee Provident Fund calculated?
There are some rules for determining how much money needs to be deposited into each employee’s PF account. Generally, an employee’s PF account includes two types of contributions. One is the employee’s contribution and the other one is the employer’s contribution. Understand PF full form in salary for a detailed breakdown.
When it is time for the Provident Fund or PF calculation in Salary, the employee contributes twelve percent of her/his basic salary and DA (dearness allowance) every month to the Provident Fund. Moreover, the employer contributes the same as their employee’s contribution, which is around 3.67% EPF and 8.33% EPS to the employee’s PF account.
Example of PF calculation in Salary:
- The basic salary of an employee along with a dearness allowance is ₹15,000
- The employee’s Provident Fund contribution is 12% of ₹15,000, which is around ₹1,800
- The employer’s contribution to the Employee Provident Fund is 8.33% of ₹15,000, which is around ₹1,250
- Employee contributions to the Employee Provident Fund = Employer contributions – employee contributions to EPS, which is around 550
- Monthly Employee Provident Fund total contribution becomes 1,800 + 550 = ₹2,350
- The rate of interest is 8.25% for the years 2023–2024
- The suitable rate of interest per month is around 0.675% ( 8.25%/12) for calculating interest.
What Are The Benefits Of The Provident Fund?
Loan against the Provident Fund: The holder of a Provident Fund Registration account can take a loan against their Provident Fund balance under emergency circumstances. The account holder needs to repay the loan within thirty-six months of the loan disbursal.
Free insurance: If the account holder passes away during the service period, then the PF account holder qualifies for free insurance, which is up to ₹7 lakhs. The entire thing falls under the EDLI scheme. Moreover, the provident fund account holder has to contribute to the insurance premium for death cover.
Home loan: A Provident Fund account holder may withdraw up to 90% of their total Provident Fund balance for the purpose of constructing or purchasing a new home. This falls under EPFO rules. Home loans from your PF account can also be used to purchase new land.
Partial withdrawal under emergency circumstances: Under some specific financial circumstances or medical emergencies, EPFO permits the PF account holder to partially withdraw their money.
Pension provision: A Provident Fund account holder is qualified to receive a pension after 58 years. To be eligible for the pension, one must contribute regularly to their Provident Fund account for a period of 15 years. The benefits of the pension come from the contribution that the employer makes to the EPF account. This is because 8.33% of their total contribution goes to the provident fund holder’s EPF account.
Conclusion
Employee Provident Fund is a mandatory scheme for employees who succeed in meeting the ₹15,000 thresholds per month. Any organisation with 20 employees or more can take advantage of this scheme. The Provident Fund account holder can receive the money at the time of retirement or while working for the organisation. The Provident Fund also provides many benefits, including home loans, partial withdrawals under emergency circumstances, etc.
If you are also a small business owner with 20 or more employees in your company, then our experienced team at Vakilsearch can help you carry out your online PF registration process in a hassle-free way within just a few clicks!
FAQ:
1. How is PF Calculated based on Salary?
The Provident Fund (PF) calculation is based on the basic salary and dearness allowance of an employee. Both the employee and the employer contribute 12% of the basic salary and dearness allowance each month to the PF account.
2. What is the PF Rule on Basic Salary?
The PF rule on basic salary is that the PF calculation is done on the basic salary and dearness allowance of an employee. Other benefits like housing rent, transport costs, medical expenses, etc., are not taken into account when calculating PF.
3. Is PF Calculated on Basic or Gross Salary?
PF is calculated on the basic salary and dearness allowance of an employee.
4. What will be the EPF Corpus on Retirement?
The EPF corpus on retirement depends on the amount of contribution made by the employee and the employer, the interest rate and the duration of the contribution. The EPF calculator available on Vakilsearch can help you calculate the total amount of money you will receive at the time of retirement.
5. How can I make my PF Deduction from Salary Calculation Easy?
To make PF deduction from salary calculation easy, you can use this free PF calculator. After you enter the required information, the PF calculator will show you the PF funds you will be eligible for at the time of retirement.
6. Can I take out my PF Salary Funds if I’m Employed but not in a Position?
No, you cannot take out your PF salary funds if you are still employed. However, you can withdraw a certain amount from your PF account for marriage, education or any medical emergencies.
