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.
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.
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:-
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.