EPF Calculation: 12% of the basic salary and Dearness Allowance (Dearness Allowance) of the employee is deposited in the EPF account. But, the employer’s 12 percent amount is deposited in two parts.
EPF Calculation for Retirement Fund: Employees’ Provident Fund (EPF) is a retirement benefit scheme for private sector employees. It is managed by the Employees’ Provident Fund Organization (EPFO). In the EPF account, there is a contribution from both the employee and the employer.
This contribution is 12-12 per cent of the basic salary plus dearness allowance. The interest rates of EPF are fixed every year by the government. At present, 8.5% annual interest is being given. EPF is such an account, in which gradually large corpus is formed till retirement. In this, there is a tremendous benefit of compounding of interest.
Retirement fund on 12 thousand basic salary
Suppose your basic salary and dearness allowance is Rs 12,000. If you are 35 years old, then by the age of 58, you can have a retirement fund of Rs 45.13 lakh ready for retirement. The maximum contribution can be made in the EPF scheme only up to 58 years.
Understand EPF Calculation
- Basic Salary + DA = Rs 12,000
- Current Age = 35 Years
- Retirement Age = 58 Years
- Employee Monthly Contribution = 12%
- Employer Monthly Contribution = 3.67%
- Interest Rate on EPF = 8.5%
- Annual Salary Growth = 10%
- Maturity Fund at 58 Years = Rs 45,13,263 (Employee contribution is Rs 15.26 lakh and employer contribution is Rs 4.68 lakh. Means some contribution is Rs 19.97 lakh.)
(Note: Annual interest rate is 8.5% and salary growth is 10% for the whole year of contribution.)
8.33% of the employer’s deposits in EPF
12% of the basic salary and Dearness Allowance (Dearness Allowance) of the employee is deposited in the EPF account. But, the employer’s 12 percent amount is deposited in two parts. Out of 12 per cent contribution of the employer, 8.33 per cent is deposited in the Employee Pension Account (EPS) and the remaining 3.67 per cent goes into the EPF account.
Understand contribution from 12,000 basic + DA salary
- Employee Basic Salary + Dearness Allowance = Rs 12,000
- Employee contribution in EPF = 12% of Rs 12,000 = Rs 1440
- Employer’s contribution to EPF = 3.67 per cent of Rs 12,000 = Rs 440.4
- Employer’s contribution to Pension Fund (EPS) = 8.33 per cent of Rs 12,000 = Rs 999.6
In this way, the total monthly contribution in the EPF account of an employee with a basic salary of Rs 12,000 in the first year will be Rs 1880.4 (Rs 1440 + 440.4). Thereafter, the basic and dearness allowance will increase in the same proportion with a 10% increase in the salary on an annual basis. With which the EPF contribution will increase. It is mandatory for the employees whose basic salary is less than Rs 15,000, to join the EPF scheme.
(Note: This calculation is based on 12,000 monthly salary, 8.5% p.a. interest and 10% p.a. salary growth. This is an estimate. The retirement corpus may vary depending on the figure.)
