Employees’ Provident Fund—commonly called PF—is a retirement benefit scheme that is available to all salaried employees. It is a very important tool of retirement planning. The tax-free interest (compounding) and the maturity ensures a good growth of our money.
Both employees and the employer contribute to PF at the ‘rate of 12%’ of the basic wages and dearness allowance (if any) per month. Thus, the total contribution to PF is 24% per month. PF provides retirement benefit to us to secure a better standard of living at retirement.
However, there are many things about EPF which most of us are unaware of. The below article provides you more information about EPF such as how the contributions are calculated based on basic salary and DA, what are the EPF interest rates, what is pension scheme, etc.
EPF & EPS
Most organisations today offer the facility of PF. EPF (Employees’ Provident Fund Scheme 1952) and EPS (Employees’ Pension Scheme 1995) are the two different retirement saving schemes under Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, meant for salaried employees. It is mandatory for every employee drawing a basic pay of up to Rs. 6,500 per month to make contribution towards EPF & EPS. However, employees drawing basic salary over Rs. 6,501per month have an option to get PF deducted from their salary.
Normally, both the employer and employee contribute 12% each of the ‘basic salary’ of the employee plus DA (if any). The entire 12% of employee’s contribution is added towards EPF, while 8.33% out of the total 12% of the employer’s contribution is diverted to the EPS or pension scheme and the balance 3.67% is invested in EPF.
However, if the basic pay of an employee exceeds Rs. 6,500 per month, the contribution towards pension scheme is restricted to 8.33% of Rs. 6,500 (i.e. Rs. 541 per month) and the balance of employer’s contribution goes into EPF.
Thus, the employer contributes only up to Rs. 541 per month (8.33% of Rs. 6,500 in the employee’s pension scheme account.
Contribution to EPF & EPS