What is EPF?
EPF stands for Employee Provident Fund. It is a collection of funds that both the employer and the employee contribute on a monthly basis. It is a scheme that provides financial support to all salaried individuals post-retirement.
EPF is the main scheme under the Employees Provident Fund and Miscellaneous Provisions Act, 1952. The Employees Provident Fund Organisation (EPFO) backs this scheme. It is mandatory for an organization that has more than 20 employees to register under the EPF Act.
In an EPF Scheme, an employee has to pay a certain amount from his salary towards the scheme. However, the employer pays an equal amount as well. This amount so contributed on a monthly basis further helps in providing monetary benefit to the employee after his retirement.
EPF is basically a retirement benefit plan and aims to ensure a financially independent retirement.
What is an EPF calculator?
The EPF calculator is a simulation, which shows you the amount of money that will accumulate in your EPF account at retirement. You can calculate the lump-sum amount, which includes both your contribution and the employer’s contribution, along with the accrued interest on the investment.
The EPF calculator has a formula box where you enter your current age, your basic monthly salary and the dearness allowance, your contribution to the EPF and your retirement age up to 58 years. You can also enter the current EPF balance if you know the figures. After entering the requisite information, the EPF calculator will show you the EPF funds available at retirement.
Advantages of EPF
EPF comes with an array of benefits to the employees. A meager contribution from both the employee and the employer helps the employee achieve financial stability post-retirement. It inculcates a feeling of future security in them.
It is a kind of investment planning by both the employee and the employer.
The following are the advantages of the Employee Provident Fund:-
- Corpus for Retirement: A minimum contribution of an employee towards the EPF scheme is 12%. Hence every employee earning over Rs. 5000 or more every month is required to pay 12% of his/her salary towards the EPF Scheme. This contribution helps in the long term to build a corpus. This corpus would help establish financial stability and security post-retirement. This will further help an employee lead a stress-free life after his retirement.
- Emergency Corpus: The EPF scheme helps overcome emergencies like medical or financial or any other unforeseen emergency. This will help him/her use the corpus in any such uncertainties arising in life.
- Premature Withdrawal: EPF comes with easy and hassle-free premature withdrawals. Employees can also partially withdrawal in cases of emergencies. The scheme allows employees to withdraw the fund before its maturity during emergencies.
- Tax Saver: Under the EPF Scheme, any interest earned is fully exempted from tax. EPF offers tax-free returns. Hence, any withdrawals made after the maturity of the fund are non-taxable. Any contribution made by the employee towards the EPF Fund is tax-deductible under section 80 C of the Income Tax Act.
How does an EPF calculator work?
To understand how the EPF calculator works, let us have an example.
Employees basic salary + dearness allowance = Rs 14,000
Employees contribution towards the EPF = 12% * 14,000 = Rs 1,680
Employers contribution towards the EPF = 3.67% * 14,000 = Rs 514
Employers contribution towards EPS = 8.33% * 14,000 = Rs 1,166.
The total contribution by the employer and employee towards the EPF account of the employee = Rs 1,680 + Rs 514 = Rs 2,194.
The interest rate is 8.1% for FY 2022-23.
So the interest rate applicable for each month is:
8.1%/12 = 0.675%
Assuming the employee joined the Firm XYZ in April 2019. The total EPF contribution for April will be Rs 2,194. The EPF scheme will not pay any interest for April.
The total EPF contribution for the month of May = Rs 4,388 (Rs 2,194+ Rs 2,194). He receives an interest of Rs 4,388 * 0.70833% = Rs 31.08.
Similarly, the calculation is done for the subsequent months.
