The Employees’ Provident Fund (EPF) is one of the various investment schemes accessible to salaried individuals in India. It ensures steady income in old age, making it an excellent retirement safety net. The employer and the employee must make a contribution of 12% of the employee’s basic pay to the EPF fund. Workers who are aware of the distribution of PF contributions may be better able to save for the future and make prudent investments. The main points of this article are particulars about the distribution of EPF contribution and how these particulars influence overall EPF investment results.
What is EPF?
The government of India set up the Employees’ Provident Fund (EPF) to ensure its employees will be financially secure when they retire. The primary objective of the EPF system is to promote retirement savings among both employers and employees. The Provident Fund (PF) is a government-mandated savings scheme that employees of businesses with 20 or more employees are obligated to pay into every month.
Workers may save regularly and have it added to their salary while they work since the employer also puts in the same amount. So, let’s keep reading to find out how the article breaks down EPF contribution.
PF Contribution Break Up
The Employees’ Provident Fund (EPF) is a popular investment option among Indians. The employee and the employer contribute 12% of the base pay to the fund, which is used for long-term savings.
Features of Breakup of EPF Contribution
Some of the features of pension contribution in EPF includes:
- Contributions of 3.67% EPF and 8.33% EPS make up an employer’s 12% share.
- Companies that have 20 employees or less, are ineligible to file it, with the Board for Industrial and Financial Reconstruction or have losses equal to or more than their net worth at the end of the fiscal year are all eligible to pay 10% to the EPF
- 3.67% goes to the Employees’ Provident Fund and 8.33% to the Employees’ Pension Scheme from the employer’s total pension contribution in EPF.
- Any money an employee puts into their provident fund will remain there.
- Beyond the previously mentioned obligations, the employer must contribute half a per cent to EDLI.
- Employers are also liable for some administrative costs, such as 1.1% of EDLI and 0.1% of EPF. The total amount that the employer is required to contribute to the plan amounts to 13.1% of the employee’s pay.
PF Contribution Breakup of Employee
Contributions from employees are typically taxed at 12%. The following categories, however, are subject to the 10% EPF contribution rate
- Organizations or businesses with a maximum of 19 employees.
- The BIFR has classified some industries to be ill.
- Companies whose annual operating losses exceed their market value.
- Items produced by businesses such as: brick, guar gum, beedi, jute, and coir.
- Organizations have a salary limit of Rs. 6,500.
PF Employer Contribution Breakup
Even if businesses may pay more if they want to, the bare minimum is 12% of Rs. 15,000. Monthly, it amounts to 1,800 rupees. The employer and the employee must contribute Rs. 1,800 each month to this plan. The original calculation was 12% of 6,500 rupees, which equated to 780 rupees each from the company and the worker.
- Donations are received by the Employees Provident Fund Organisation (EPFO) from both entities.
- With this long-term investment fund, participants may confidently prepare for retirement.
Contribution Rate for Employee’s Salary up to Rs.15,000
- The EPF receives 12% of every employee’s salary.
- A 3.67% payroll deduction to the Employees’ Provident Fund.
- Earnings per share (EPS) contribution from the employer: 8.33% of salary, up to a cap of Rs. 15,000 (1,250 rupees).
Breakup of Contribution if Salary is above Rs. 15,000
- If your salary is Rs.15,000 or more, your company will pay 12% of your salary.
- The EPS account receives 1,250 monthly rupees, or 8.33% of Rs 15,000.
- Any sum beyond Rs 1,250 per month is deposited into the EPF account.
Consider an employee whose basic salary plus dearness allowance totals Rs. 50,000:
- The employee EPF employer contribution is Rs. 6,000 (12% of Rs.50,000).
- Contribution to the EPF by the employer (3.67% of Rs.50,000): Rs. 1,835.
- 1,250 rupees is the employer’s contribution to EPS.
Since 8.33% of Rs.50,000 is Rs. 4,165, Rs.1,250 is transferred to the EPS account, and Rs.2,915 is transferred to the EPF account.
The EPF account currently will have a balance of Rs. 10,750 in total.
(i.e., employee contribution of Rs.6,000 plus EPF contribution limit of Rs.1,835 plus employer excess contribution of Rs.2,915 to EPS)
How May One Calculate their PF contribution?
A simple PF calculation uses an individual’s base salary as its foundation. Looking at an example can help you understand the calculation better. Your basic salary, including dearness allowance, is Rs. 25,000.
Employee’s EPF contribution: 12% of Rs. 25,000 equals Rs. 3,000 per month.
Employer’s EPS contribution: If the pay is less than Rs. 15,000, 8.33% of the salary is deducted. If the salary exceeds Rs. 15,000, the employer contributes a predetermined sum of Rs. 1,249.50 to the EPS. Along with the predetermined amount, 8.33% of the pay is computed, deducted from the fixed EPS amount, and the remainder is deposited to the EPF.
In our case, 8.33% of Rs. 25,000 is Rs. 2,082.50, so 2,082.50 – 1,249.50 = Rs. 833, which is the excess amount in EPS. It is transferred to the EPF account by the employer.
Total employer’s contribution to EPF: 3.67% of the salary + excess from EPS = Rs. 917.5 – Rs. 833 Rs. 1,750.50 monthly.
Overall, total EPF contribution is = employee’s contribution + employer’s contribution Rs. 3,000 + Rs. 1,750.50 = Rs. 4,750.50.
Log in using your UAN (Universal Account Number) to see your EPFO account balance and contributions made up to this point.
Breakup of EPF Contribution
There is no ambiguity in principle about EPF contribution percentage. Before delving into the calculation of EPF’s split, let’s have a grasp on what EPF is and its purpose.
One retirement savings plan specifically designed for salaried workers is the Employees’ Provident Fund (EPF). The EPF fund is a joint effort between the company and the employee—
This is the breakdown of EPF:
a. It is deducted from a worker’s salary.
b. The company puts in 12%, however
c. An employee’s contribution equals 12% of their basic salary.
These EPF contribution rules will help support the Employee Provident Fund Organization (EPFO). Through this form of investment, one may build up a considerable corpus during their working life, allowing them to become financially independent once they retire. In addition to the retirement savings advantage, individuals now have the opportunity to borrow from EPF. One other perk of the present income tax rules is that you may claim your EPF employee and employer contribution as a tax deduction.
Conclusion
Employee Provident Funds (EPFs) are vital employee benefits in India, and they’re worth mentioning. It is essential for employers to understand EPF and its parts, such as the EPF employee and employer contribution breakdown and the rules and regulations that pertain to it. If you follow these steps, you may be certain that your workers will receive a legitimate retirement benefit that meets their requirements.
FAQ’s:-
Attachment of Bank Accounts, Sale of Properties, Arrest and Detention Prosecution of Employers under Section 14 of the EPF and MP Act of 1952, Indian Penal Code Sections 406/409, and Receiving Debts from Debtors
The EPF Contribution Breakup is subject to regulations set by the Employees’ Provident Fund Organization (EPFO) and is typically determined by statutory rules. Any changes would require amendments to the relevant regulations.
It is not lawful for a company to deduct money from employees’ paychecks as their part of the EPF contribution. It is against the law to draw such a deduction.
The EPF Contribution Breakup ensures a systematic saving mechanism for employees, providing financial security after retirement. It also includes provisions for pension and insurance benefits.
No, it is not possible for a person who has left their job to still contribute to the EPF.
Apart from the basic EPF contribution, there are components like the Employee Pension Scheme (EPS) and Employee Deposit Linked Insurance (EDLI) that are part of the overall EPF contribution breakup.