EPF Calculation: How To Calculate You And Your Employer's EPF Contribution?

EPF is a retirement savings option, specially tailored for employees and for a long-term period of time. The employee and the employer mainly contribute to the EPF fund. Contribution to the Employee Provident Fund is optional if the basic salary is higher than Rs.6500/-per month and the employee can choose between contribution and non-contribution of the Provident Fund. The amount will be deposited with the Employee Provident Fund Organization (EPFO). This creates funds over time and helps to make the person financially comfortable after retirement.
The interest rate of the EPF largely determined by the central government in consultation with the Central Board of Trustees. The EPF interest rate notification is available on the EPF India official website on an annual basis.

EPF Contribution

Any corporation with a total of 20 or more employees is allowed by law to deduct EPF. EPF membership is mandatory for any salaried employee with a monthly salary of less than 15,000 INR. If an employee's salary is greater than INR 15,000 and they have never contributed to EPF, he or she may choose to opt-out. This can be achieved by completing Form 11, which is an EPFO self-declaration form.

The total of the employee and employer contributions is added to the total of the interest received in each of the 12 months of the year at the end of the year. The end-of-year EPF balance is the sum of these calculations. EPF interest is determined based on the monthly operating balance.

How to calculate EPF?

EPF is based on the salary, with salary equaling Basic + DA (Dearness Allowance)
Salary = Basic in private companies.
The EPF contribution is usually 12% of the salary.

Your employer is also expected to contribute 12%. This 12%, on the other hand, is split into two accounts:
Employee Provident Fund- 3.67%
Employee Pension Scheme (EPS) - 8.33%

The employer also needs to pay 1% extra charges

Employee Deposit Linked Insurance (EDLI) - 0.5%

EPF administration charges - 0.5%

Let's look at an example of an EPF contribution. Assume your monthly salary is Rs 20000. So, here's how the EPF contribution will be split:
Employees' Share
Employee's contribution towards EPF = 12% of 20000 = Rs 2,400
Contribution of the employer to EPS (subject to limit)= Rs 1,250
Employer's contribution towards EPF = (Rs 2400- Rs1,250) = Rs 1,150

Total EPF contribution every month = Rs 2,400+ Rs 1,150 = Rs 3,550
All of this adds up to Rs 4,800, which is deposited monthly as part of the EPF.

EPS Contribution: Things to know

The employer's share of PF is used to fund the contribution, and the employee is not expected to pay anything.
EPS will not be contributed when an employee reaches the age of 58 and is still working, he or she is not required to pay a pension contribution, EPS membership ceases on completion of 58 years.
When an EPS retiree receives a Reduced Income and re-enters the workforce.
For international employees, the higher pay limit of Rs.15,000 is no longer in effect as of September 11, 2010.
If he is not a pensioner, a member entering after 50 years of age would not have the option of not receiving the Pension Contribution because he will not complete 10 years of eligible service. He or she is covered by social security as long as he or she is a member.

Under EDLI

Even if PF is paid on higher salaries, contributions would be paid up to an overall wage limit of Rs. 15000/-.
Each contribution will be rounded to the nearest rupee.
And if a member has reached the age of 58, EDLI contributions will be paid even if no pension contribution is due.

This will be paid as long as the member is working and PF is earned.

Benefits of EPF Contribution

Your EPF balance gives you an interest rate of 8-9 percent. In India, the current interest rate is 8.50 percent. This high rate of interest makes retirement planning better.
Your EPF is classified as EEE (Exempt Exempt Exempt). That is, the money you put into an EPF account, the interest you receive, and the money you withdraw is all tax-free. Note that interest earned on EPF contributions by employees earning more than Rs 2.5 lakh per year is now taxable.