Employee Provident Fund: Eligibility, Calculation & Benefits Explained (2024)

Employees' Provident Fund is a scheme to save money for one's retirement. Both employers and employees contribute to this plan. EPF India is one of the world's largest retirement benefit schemes. Check out its details below.

EPF stands for Employees' Provident Fund. It is a retirement benefits scheme where both an employer and employee contribute equally to this scheme. Both must contribute around 12% of the basic salary to this fund.

At the time of retirement, the employee gets a lump sum and interest on it.

In this Employees' Provident Fund, both employee and employer contribute to this fund. The contribution is to the tune of 12% of basic salary, with dearness allowance taken into account if paid.

However, not all of an employer's contribution goes to EPF. An employer contributes around 3.67% of the 12% to this fund. The remaining 8.33% goes to this Employees' Pension Scheme.

[Source]

There are plenty of benefits for investing in this Employees' Provident Fund. They are as listed below:

[Source]

Capital Appreciation

There is a fixed rate of interest available in this EPF India scheme. Moreover, the EPF also earns an interest even when lying dormant.

Corpus for Emergencies

Because of specific premature withdrawal rules, the EPF can act as an emergency corpus.

Corpus for Retirement

The main reason people invest in the EPF is to get a retirement corpus. The corpus gives investors a sense of security.

Tax Saving Scheme

Employees’ Provident Fund comes under Section 80C of the Income Tax Act. Therefore, even the earnings from this EPF scheme are exempt from taxes.

Therefore, there are many benefits of making an EPF contribution.

The EPF eligibility criteria are as follows:

• Any company with more than 20 employees must register with the Employees’ Provident Fund Organisation of India compulsorily.
• Companies with less than 20 employees can also register for the Employees' Provident Fund voluntarily.
• All employees drawing a salary are eligible for EPF.
• Moreover, it is compulsory for all employees earning less than ₹15,000 to register for the EPF.
• However, employees earning more than ₹15,000 can also voluntarily stay in the EPF scheme.

Hence, these were the EPF pension eligibility rules.

[Source]

EPF interest rate 2023-24 is 8.15%, as per the EPFO’s (Employee Provident Fund Organisation) norms. A current EPF interest rate was fixed at 8.15% as per order number INV-11/2/2021-INV/2766 dt. 24-07-2023

[Source]

Here's how to calculate EPF interest. Contributions to this Employees' Provident Fund are made monthly. However, the interest is calculated at the end of a year.

An interest rate of 8.15% is divided monthly, and that amount is paid to the employee. Therefore, monthly interest is 8.15%/12 = 0.6792%.

For a running balance of ₹6000, the interest calculated per month is shown below:

EPF Interest = Running balance for the month*0.6792/100%

Above was the EPF calculation for the years 2023-24.

[Source]

EPF Contribution

Employee's Contribution

No matter the employee's income, the contribution to PF is 12% of the Basic Pay + DA.

Employee Contribution to EPF=12/100*(Basic+DA)

Employer's Contribution

The employer's contribution to PF is as follows:

Employer's Contribution to EPF=3.67/100*Basic+DA

8.33% goes to the Employee Pension Scheme.

[Source]

EPF is a EEE tax rule. Therefore, it is exempt from tax on EPF withdrawal. Further, contributions and interest received are also exempt from tax. However, there are some cases where EPF is taxable. These are:

• It is taxable if an employer's contribution to the Employees' Provident Fund exceeds ₹7.5 lakhs in a financial year. An employee is liable to pay tax on an amount that exceeds ₹7.5 lakhs.
• If an excess contribution from the employee's side to the EPF account exceeds ₹2.5.
• If there is no employer contribution to an EPF account, which is the case for government employees, then the interest will be tax-exempt up to ₹5 lakhs in a financial year.
• Interest earned on inactive EPF accounts is taxable in the employees' hands.
• Withdrawal from the Employee Provident Fund account is tax-exempt except when withdrawal happens after less than 5 continuous years of service. And if any withdrawal amount exceeds ₹50,000, then TDS is applicable at the rate of 10%. However, withdrawals can be exempt in an employee's poor health, closing of a business or other events beyond the person's control.

[Source]

• Employers can send their queries to employerfeedback@epfindia.gov.in.
• Employees can send their queries to employeefeedback@epfindia.gov.in.
• Moreover, you can also call the toll-free EPFO contact number 1800118005.

For more information on contacting Employee Provident Fund, you can use these links:

• https://www.epfindia.gov.in/site_en/Contact.php
• https://www.epfindia.gov.in/site_en/Contact_us.php#

In conclusion, the Employee Provident Fund is a good investment vehicle for saving for their retirement. Having a triple exempt status means that the withdrawal amount, the interest and the contribution are exempt from taxes. Hence, it is popular among salaried persons.

[Source]