If you're a salaried employee in India, you might have noticed a portion of your salary being deducted each month. This deduction contributes to the Employees’ Provident Fund (EPF), a government-backed scheme designed to secure your financial future post-retirement. Tools like an EPF Calculator can help you estimate your savings over time.
What is the EPF Scheme?
The Employees' Provident Fund (EPF) is a retirement savings scheme mandated by the Indian government. Managed by the Employees' Provident Fund Organisation (EPFO), it requires both employers and employees to contribute a specific percentage of the employee's salary towards a fund that accumulates over time, providing financial security upon retirement.
Key Features of the EPF Scheme
The EPF scheme is packed with employee-centric benefits that promote disciplined savings and long-term financial security. Here are the key features that make it a reliable retirement tool:
● Mandatory Contribution: In India, organisations with more than 20 employees must enrol in the EPF scheme. Both the employee and employer contribute 12% of the employee’s basic salary and dearness allowance every month.
● Tax Benefits: EPF contributions are eligible for tax deductions under Section 80C of the Income Tax Act. Moreover, the interest earned and the amount withdrawn after five years of continuous service are exempt from tax.
● Withdrawal and Maturity: While the full EPF balance is generally accessible at the time of retirement, partial withdrawals are allowed in specific cases like medical needs, education, or home purchase. The full amount, along with interest, is usually disbursed upon retirement.
● Interest Rates: The interest rate is set annually by the Employees' Provident Fund Organisation (EPFO). For the financial year 2024–25, it has been fixed at 8.25%.
● Financial Security: Being backed by the Indian government, the EPF scheme ensures safe and stable returns, providing employees with long-term financial assurance.
● Retirement Savings: This scheme offers a disciplined and reliable method to build a retirement corpus, helping employees maintain a secure lifestyle post-retirement.
● Partial Withdrawals: Employees can make partial withdrawals from their EPF account for approved needs such as medical treatment, higher education, or home loan repayment.
● Employee Pension Scheme (EPS): A part of the employer’s contribution goes into the EPS, which provides eligible employees with a monthly pension after they retire.
Benefits of the EPF Scheme
Employers also gain from offering Employee PFs, as the EPF scheme provides several advantages for them too. Here are some key benefits:
● Dual Contributions for Biggеr Savings: A major bеnеfit of EPF is thе joint contribution modеl. Whilе you contributе a part of your salary, your еmployеr also matchеs it, hеlping your savings grow fastеr ovеr timе.
● Tax Bеnеfits Undеr Sеction 80C: EPF contributions qualify for tax dеductions undеr Sеction 80C of thе Incomе Tax Act. Thе intеrеst еarnеd and thе final maturity amount (aftеr fivе yеars of continuous sеrvicе) arе also tax-еxеmpt, giving you morе valuе for your monеy.
● Attractivе Intеrеst Ratеs: Thе EPF offеrs a compеtitivе intеrеst ratе, oftеn highеr than most traditional savings options. This еnsurеs steady growth of your retirement fund through compounding.
● Lump-Sum Bеnеfits at Retirement: Upon rеtirеmеnt, you rеcеivе a lump-sum payout that includеs your contributions, your еmployеr’s sharе, and all accumulatеd intеrеst—giving you strong financial support whеn you nееd it most.
● Government-Backed Security: Managed by thе Employees Providеnt Fund Organisation (EPFO), a statutory body undеr thе Ministry of Labour and Employmеnt, thе EPF offеrs transparеncy, trust, and guarantееd rеturns, unlikе privatе savings instrumеnts.
● Easy Tracking for Bеttеr Planning: With digital tools and rеgular updatеs, you can еasily chеck your EPF balancе. This helps you keep track of your retirement savings and plan your finances effectively.
An Investment App can help you track your EPF contributions, explore other investment avenues, and manage your portfolio efficiently. These apps often provide insights, alerts, and recommendations tailored to your financial goals.
How is EPF Contribution Calculated?
The EPF balance is calculated using the following components
● Basic Salary: This is the fixed monthly pay, excluding allowances or deductions.
● Dearness Allowance (DA): Paid as a percentage of the basic salary, DA helps employees manage inflation.
● Employee Contribution: You contribute 12% of your basic salary and DA to your EPF account every month.
● Employer Contribution: Your employer matches this with another 12% of your basic salary and DA.
● Interest Rate: Set by the government, the EPF interest rate can change annually.
Formula to Calculate EPF Balance:
EPF balance = (Employee contribution + Employer contribution) × (Interest rate / 12) × Number of months
Example:
Suppose your basic salary is ₹20,000 and DA is 10% of that, i.e., ₹2,000. Your total considered salary becomes ₹22,000
●12% of ₹22,000 = ₹2,640 (employee’s contribution)
●Employer contributes another ₹2,640
●Total monthly contribution = ₹5,280
If the interest rate is 8%, the one-year interest would be:
EPF balance = ₹5,280 × (8% / 12) × 12 = ₹5,280 × 0.67 = ₹3,542.4
So, after one year, your EPF balance would grow by ₹3,542.4 in interest alone.
Alternatively, using a retirement calculator can simplify this process, providing a clear picture of your savings trajectory.
How to Check PF Balance Online
You can check your PF balance through various methods:
● EPFO Portal: Log in using your UAN* and password to view your passbook.
● UMANG App: A government app providing access to EPFO services.
● SMS: Send "EPFOHO UAN ENG" to 7738299899 from your registered mobile number.
● Missed Call: Give a missed call to 011-22901406 from your registered number.
*The UAN is a unique identifier assigned to each EPF member. It remains constant throughout your career, even if you change employers. Linking all your PF accounts to your UAN allows for seamless management and transfer of funds.
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Conclusion
Thе EPF scheme sеrvеs as a cornerstone for rеtirеmеnt planning in India, offеring a structurеd approach to savings with addеd bеnеfits. Understanding its mechanics and staying updated with its features empowers you to make informed financial decisions, ensuring a sеcurе and comfortable retirement.
