Employees Provident Fund contribution (EPF) calculation: Every private sector employee has to contribute 12% of his/her Basic Salary+Dearness Allowance (DA) towards the Employees’ Provident Fund (EPF). However, DA is available only to Government employees. The EPF contribution of private sector employees is determined only on the basis of the Basic Salary/Pay.
The employer also contributes 12% of the Basic Pay of the private sector employee towards his/her EPF and EPS accounts. However, there are certain conditions for the employer’s share.
From 12% of the employer’s contribution, 8.33% of Basic goes to the Employees Pension Scheme (EPS) account of the employee whereas the remaining 3.67% goes towards the EPF account.
As per EPFO rules, the Basic Salary considered for the contribution towards EPS of a private sector employee is limited to Rs 15,000. This means an employer contributes only Rs 1250 (8.33% of Rs 15,000) towards the EPS account of the employee while the remaining amount goes to the EPF account. Let’s understand this with an example.
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Suppose the basic salary is Rs 25,000: In this case, the employee’s contribution will be Rs 3000 (12% of Rs 25,000). Employer’s contribution will be 8.33% of Basic Salary towards EPS and 3.67% towards EPF.
The 8.33% of the employee’s Basic Salary in this case is Rs 2082 which is higher than the Rs 1250 (calculated against Rs 15,000 salary limit). Therefore, in this case, Rs 1250 will go to the employee’s EPS account while the balance amount i.e. Rs 832 (Rs 2082-Rs 1250) will go towards the employee’s EPF account.
Also, the employer has to contribute 3.67% of the basic salary of the employee towards his/her EPF account, which is Rs 917 (3.67% of Rs 25,000). Thus the total monthly contribution towards the EPF account of an employee having a basic Salary of Rs 25,000 will be Rs 4749 (Rs 3000+Rs 832+Rs917).
What will be the EPF corpus on retirement?
The current EPF interest rate is 8.15%. This rate has historically remained around or above 8%.
Assuming this employee continues to draw a Basic Pay of Rs 25,000 till retirement and the EPF rate is 8.1%, then his total PF corpus at the time of retirement will be as follows:
If the employee is aged 25 and retires at 58: The total monthly contribution towards his/her EPF account will be Rs 4749 per month. Simple compound interest calculation shows that this employee will have a corpus of approx. Rs 95 lakh at the time of retirement.
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However, if the employee’s basic pay increases by 5% annually, then the total amount accumulated in the PF account at the time of retirement will be approx Rs 1.9 crore.
If the employee is aged 30 and retires at 58
If the employee is aged 25 and retires at 58: The total monthly contribution towards his/her EPF account will be Rs 4749 per month. Simple compound interest calculation shows that this employee will have a corpus of approx. Rs 61 lakh at the time of retirement.
However, if the employee’s basic pay increases by 5% annually, then the total amount accumulated in the PF account at the time of retirement will be approx Rs 1.1 crore.
If the employee is aged 35 and retires at 58
If the employee is aged 35 and retires at 58: The total monthly contribution towards his/her EPF account will be Rs 4749 per month. Simple compound interest calculation shows that this employee will have a corpus of approx. Rs 39 lakh at the time of retirement.
However, if the employee’s basic pay increases by 5% annually, then the total amount accumulated in the PF account at the time of retirement will be approx Rs 69 lakh.
(Disclaimer: The above content is for illustration and information purposes only. Employees should check their actual EPF contribution to calculate the amount they may get on retirement from EPFO)
