10 Things You Must Know About EPF Scheme And How to Calculate The PF Balance

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The employee receives this amount upon retirement. It includes employer contributions, employee contribution and interest. EPF scheme was created by the Indian government to encourage savings. Below are 10 facts about the EPF scheme.

  1. EPF is the principal scheme in the Employees’ Provident Funds & Miscellaneous Provisions Law, 1952. It is managed by the Employees’ Provision Fund Organization (EPFO).
  2. This applies to all organizations with more than 20 employees. The EPF scheme also covers a few smaller companies with fewer than 20 employees, but only under certain conditions.
  3. EPF contributions by employers are 12% + dearness allowance + retention allowance. Equal contributions are made by employees. Employers and employees can only contribute 10% to the EPF if they have fewer than 20 employees.
  4. Private sector employees have an EPF based on their monthly basic pay. This means that if the individual’s monthly salary is Rs. 30,000, the employee contribution to his or her EPF would amount to Rs 3,600 per month (12 % of the basic pay), while the employer contributes the same amount each month.
  5. The EPF Act states that an employee must retire after he or she has served for 55 years. The EPF total balance is the sum of the employer contribution plus the employee’s contribution and the accrued interest.
  6. If you have at least five continuous years of service, the EPF withdrawal will not be taxable. This applies even if the EPF has been transferred to a new employer after a job change of less than five years.
  7. Tax implications can arise from withdrawing the PF balance after five consecutive years of service.
  8. The purpose of contributing to EPF is to help with post-retirement expenses. You can withdraw your entire EPF amount, or take a small advance while you are employed to meet certain needs like buying a home, paying off a home loan, or education, or marriage, of children.
  9. EPFO recently granted members the ability to use their EPF accumulations for down payments on houses. Contributory employees of the provident funds (PF) scheme can use 90 percent EPF accumulations for down payments to purchase houses, and to pay EMIs on home loans.
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Calculate the balance of employee provident funds using EPF Calculator

The EPF balance is the employee’s contribution plus the employer contributions. It equals 12% of the employee’s monthly pay plus the dearness allowance. If the Basic Pay plus the DA is less or equal to Rs 15000 the employee contribution is 12 percent of Basic Pay + the DA, while the employer contribution is 3.67% of the BasicPay + DA.

EPF Calculator can be used to calculate your EPF accumulations. Simply enter your basic information, such as your age in years, your monthly salary in rupees, your employer contribution the average annual salary increase you expect (%), when you retire, and click on “Calculate”. To instantly get the results,

EPF calculators function in the same manner as EMI calculators but they will tell you about future savings and not the expenditures.

Tax on Early Withdrawals of PF Funds

It might seem like a good idea to withdraw your PF from an organization after you leave it. You should know that tax consequences will result from withdrawing money after you have worked for 5 years. In the year that you intend to withdraw your PF, the employer’s contribution towards the PF and the interest earned will be taxable. The amount of tax relief that you previously claimed under Section 80C, as well as the contribution employer made towards the PF, will be added to your income for the year of your withdrawal. The interest you earn on your contribution to the PF is also taxable.

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TDS (tax deducted at source) was introduced by the government to PF withdrawals in an effort to discourage premature withdrawals and promote long-term savings. TDS will not be applied to employees who withdraw PF after five consecutive years of service. TDS is not applicable if an employee transfers PF from one account.