It is a retirement savings plan to which companies and employees both contribute. The Employees’ Provident Funds Act of 1952 is the law regulating and managing it. The fund is managed by the Employees’ Provident Fund Organisation or EPFO. Employers with a minimum of 20 workers are obligated to provide their employees with EPF accounts. Some organisations with less than 20 workers, on the other hand, may assist their employees in opening EPF accounts and set their provident fund.
Workers with a salary of less than Rs.15,000 (which will be the total of base pay plus dearness allowance) must create an EPF account in organisations with more than 20 employees. Most organisations, however, make the amenities open to all employees, regardless of compensation. Furthermore, the Universal Account Number or UAN makes it simple to transfer your EPF corpus from one organisation to another.
An employee must contribute 12% of their basic and dearness allowance to EPF each month. The employer matches this payment and provides the equal amount. 8.33% of the 12% goes to the Employee Pension Scheme, while 3.67% goes to the EPF. However, 12% of the employee’s overall contribution goes to EPF.
When you retire, you can take a lump sum payment from your EPF. Because the EPF is managed by the Government of India and guaranteed a return, it is one of the most popular retirement savings plans. The EPFO determines the rate of interest on the contribution, which might change on an annual basis.
What Exactly Is An EPF Calculator And How Can I Make Use Of It?
The EPF calculator is an online financial calculator that calculates the entire amount of money in your EPF account after you retire. You may calculate the total amount accrued in your EPF account, which includes both your and your employer’s payments as well as the interest gained on the investment.
The EPF calculator will show you the accumulated corpus through EPF accessible upon retirement once you enter the essential details. In the EPF calculator’s formula box, input your current age, basic monthly wage and dearness allowance, monthly EPF contribution, and retirement age up to 58 years. If you know the current EPF balance, you can input it as well which would help you increase the accuracy of the final results intact.
EPF Calculation Formula with Example
Contributions to EPF must adhere to government requirements. A company’s provident fund is made up of two sorts of contributions. The contributions of both the employee and the employer are significant.
Employee contributions to the EPF
The employee contributes 12% of their base salary and Dearness Allowance to the EPF account each month.
For example, if the baseline monthly salary is Rs 20,000 (assuming that there is no dearness allowance), the employee contribution is 12% of that amount, or Rs. 2400.
Employer contributions to the EPF
The employer is supposed to contribute 8.33% of the 12% to the Employee Pension Scheme, leaving 3.67% for the EPF. As a consequence, the employer contributes Rs.734, or 3.67% of Rs 20,000, to the EPF.
As a consequence, if a worker earns Rs 20,000 per month, the total contribution to the EPF account will be Rs. 3,134 (employee contribution + employer contribution).
The current interest rate
For the fiscal year 2022-23, the EPF’s current interest rate is 8.1%. The EPFO determines the interest rate for the EPF plans each year. The finance ministry examines interest rate changes in light of current market conditions. However, rather than at the end of the year, this interest is computed at the end of each month.
It is deposited into the EPF account at the end of the fiscal year.
In this situation, the first-month EPF contribution is Rs. 3,134. The same amount will be contributed again in the second month.
As a consequence, the account’s total balance would be Rs 6,268. Because there is no interest for the first month, it now qualifies for monthly interest. If the yearly rate is 8.10%, the monthly rate is 8.10/12, or 0.675%.
At the end of the year, the interest earned will be totalled and put into the EPF account. As a consequence, 0.675% of Rs.6,268 is Rs.42.30, the second-month interest on your EPF. This will climb or jump more when monthly payments are raised over the fiscal year.
Here’s a quick rundown:
- Basic pay plus a particular DA or Dearness Allowance – Rs. 20,000
- EPF contributions made by employees – Rs. 2,400
- Contribution of the employer to the EPF – Rs. 734
- Contribution of the employer to EPS – Rs. 1,666
- The entire contribution to the EPF – Rs. 3,134
- The interest rate for fiscal year 2021-22 – 8.10%
- Monthly interest rate – 0.675%
- Received interest – Rs. 42.30
Instead of doing a manual calculation, you may use an online EPF calculator to compute the EPF amount.
How does Kanakkupillai’s EPF Calculator Work?
The Kanakkupillai EPF or Employee’s Provident Fund Calculator is simple to use. You must enter the inputs and immediately obtain the results.
Step 1: Enter your monthly base wage.
Step 2: Include your current age.
Step 3: Include your retirement age. The retirement age will differ depending on the company and its policies. However, the maximum retirement age for employees in the private sector is 65 years.
Step 4: Add your cumulative EPF balance, if you have one, as well as your employer’s contribution and your percentage contribution.
Step 5: Enter 12% in the boxes for employee and employer EPF contributions.
Step 6: Enter the current EPF interest rate and press the “Calculate” button.
The EPF calculator at Kanakkupillai will compute the:
- total contribution,
- total interest income, and
- maturity amount.
You may also include the expected annual increase and compute the EPF amount upon retirement. If you anticipate an increase in your basic monthly wage, then you should add the projected sum and recalculate the EPF amount. This will give you a better understanding of how much money you may save through your EPF plan.
What Can An EPF Calculator Help You?
An EPF calculator can assist you in determining how much you will get from EPF contributions. You may then plan your retirement properly and set an upright financial and investment plan with all the amount you have earned. If you believe that the maturity amount is insufficient, you might invest in other similar investment alternatives to create a sufficient retirement corpus.
The Benefits Of Using Kanakkupillai’s EPF Calculator
Calculate the future amount:
The EPF Calculator on Kanakkupillai tells you how much corpus you will have in your EPF fund when you retire. You develop a better grasp of the retirement plan, which helps you manage other assets and even a good investment plan for a financially secure future.
Increase your retirement savings:
You may increase your retirement contributions by using the Kanakkupillai’s EPF Calculator. If you think your retirement fund is insufficient to meet your needs, you might consider different retirement investing options to enhance your retirement corpus.
Simple to use:
The Kanakkupillai EPF Calculator estimates your:
- EPF corpus in retirement,
- total contribution, and
- interest income fast and easily.
Considers the current EPF interest rate:
To calculate the interest earned and maturity amount, the EPF calculator will automatically consider the current EPF interest rate. As a result, you do not need to be concerned about fluctuations in the EPF interest rate.
How EPF Works?
Most of us aim to fulfil three financial goals when we invest and this would include:
- generates wealth,
- has a regular income through a pension when we retire, and
- protects our family’s future.
Further, while we purchase separate financial goods to attain each of these objectives, there is one that helps us achieve all three. The majority of us are not only aware of it, but actively invest in it since it is part of our pay.
Employee Provident Fund, or EPF, is basically the product.
And here through this writing, we attempt to simplify the structure of EPF for you by splitting it down into its constituent parts for an easier understanding and planning. We also examine into how it works, the interest rate you may receive, and the regulations for EPF withdrawals.
EPF: The Fundamental Structure
The EPF is not a single plan. It really consists of three distinct plansor constituents with three distinct goals.
- The first section of EPF is where you save for retirement. This is the scheme’s wealth creation component.
- The employee pension programme or scheme (EPS) is the second component of EPF. The goal of EPS is to produce a pension for employees over the age of 58.
- The third and last component of EPF is the Employee Deposit Linked Insurance Scheme, often known as EDLI. This is a life insurance policy.
The good news is that you do not need to register for all of these perks individually. When you sign up for EPF, you are also immediately signed up for EPS and EDLI.
Let’s take a look at each of these components and the direct affect it is having towards your pay.
The Working Relationship Between EPF and Salary
In case you are an employee, the contribution you make would be a portion of your salary to the EPF plan. This sum is frequently matched by an equivalent contribution from your employer. After that, the whole sum is deposited with the Employee Provident Fund Organization (EPFO). And you continue to earn a specific rate of interest on the money you deposit with EPFO each year.
Assume you contribute Rs. 5,000 per month to the EPF system as part of your paycheck. The entity you are working with would match it with an additional Rs. 5,000 each month. The total payment, Rs. 10,000, is then deposited with EPFO.
Every year, you will get 8.5% (the current rate of interest in the EPF system) on the money you deposit with EPFO. This interest rate is subject to vary because EPFO decides on it once a year.
This is the fundamental structure of operation of an Employee Provident Fund or EPF plan. According to the legislation, the EPF deduction must now be 12% of your basic wage.
However, keep in mind that salary only refers to two things in the context of EPF and this includes your basic pay and your dearness allowance (DA) which are two basic components of the salary package offered to you by the company. Your salary does not include your:
- transportation allowance,
- special allowance, or
- any other benefit shown on your pay stub, which shall be noted in particular.
In general, firms in the private sector do not have a dearness allowance component, therefore only the ‘Basic Salary’ is used to calculate EPF.
The company matches the employee’s contribution exactly. That’s an additional 12%.
As a result, the programme receives a total of 24% of your basic wage. However, the full 24% does not go towards the first section of EPF, which is where your retirement benefits are accrued.
EPF (Employee Provident Fund), EPS (Employee Pension Schemeand the EDLI (Employee Deposit Linked Insurance Scheme)
Employees Deposit Linked Insurance Scheme (EDLI) is a type of insurance offered by the EPFO. In the case of the death of the individual insured within the service period, the registered nominee receives a lump-sum payout. As a result, you are not required to pay a premium or contribute to EDLI individually. When you sign up for the EPF plan, you immediately receive this insurance.
Let us now examine the distinction between EPF and EPS
The employee’s 12% contribution goes into the EPF. However, the employer’s 12% is divided into many components. The EPF receives one-third of the employer’s contribution to the programme, or 3.67%.
And the majority, 8.33%, goes to the EPS. However, in order to calculate the EPS contribution, the laws demand that the pay itself be restricted at Rs. 15,000.
Let me illustrate this with an example.
Assume your monthly pay is Rs. 50,000 (basis plus DA). Employee contributions are 12% of Rs. 50,000, or Rs. 6,000, and go to the EPF. The employer will additionally contribute Rs. 6,000.
Understanding this breakdown might help you understand your wage structure better if you are a salaried employee. As a result, it may have an effect on your take-home pay. For example, if your company permits it, you can choose to make the minimum statutory PF contribution of Rs.1,800, or 12% of Rs.15,000. You can improve your take-home pay by having your human resources department adjust other aspects of your remuneration.
Second, if you run a firm, you may play it smart by creating a payment structure in which 100% of the salary is basic pay. This manner, you may increase your contributions to EPF, lowering your tax bill and creating a nice retirement nest egg for yourself in a tax-free instrument. This is something that a lot of businesses do.
EPF Rules Of Eligibility
Now, let’s look at the scheme’s qualifying requirements.
The current laws mandate every firm with 20 or more workers to register with the EPFO and give EPF benefits to its employees. Organizations with less than 20 workers, on the other hand, can join the EPF programme on a voluntary basis.
Furthermore, the guidelines indicate that workers earning up to Rs. 15,000 per month must participate in the EPF scheme.
However, it is possible to opt out of the EPF programme entirely. When you start your career, i.e., when you join your first firm with a base income of more than Rs.15,000 per month, you can opt out of the EPF system.
In such situation, because you have never contributed to an EPF plan, you can fill out Form 11 when you join the company, and they will classify you as an exempt employee for PF reasons.
You can join the EPF programme later, but once joined, you cannot be excused unless you work for a future firm or a start-up that is not registered under the EPF Act.