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Provident Fund
30 June 2015
13:37
Source: http://www.bemoneyaware.com/blog/epf/
Main SLAB Rates and most popular method of application, in case of higher
salaries:
Contribution Towards Calculation
Amount
6500 x 12%
780
EDLI charges
6500 x 0.5%
33
6500 x 1.1%
72
EPFO logo
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Scheme Name
12%
3.67%
8.33%
0.5%
1.1%
0.01%
In industries like beedi, jute, guar gum factories, coir industry (other than spinning sector) the
Employee contribution is 10% while employers contribution is 1.67%.
Employees drawing basic salary upto Rs 6500/- have to compulsory contribute to the Provident
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fund and employees drawing above Rs 6501/- have an option to become member of the
Provident Fund. It is beneficial for employees who draw salary above Rs 6501/- to become
member of Provident Fund as it is deducted from the salary before it is deposited on bank or
given hence compulsorily saving happens.Employees contribution is matched by Employers
contribution(till 12%) so extra money and it is helpful for tax purpose too. The employer
contribution is exempt from tax and employees contribution is taxable but eligible for
deduction under section 80C of Income tax Act.
Amount
3500 x 12%
420
EDLI charges
3500 x 0.5%
18
3500 x 1.1%
39
Amount
7500 x 12%
900
6500 x 8.33%
541
EDLI charges
7500 x 0.5%
38
7500 x 1.1%
83
7500 x 0.01%
Method -2
Some companies follows the below method in which employee share is calculated on 7500/- and
employer share is calculated on up limit Rs 6500/-
Amount
7500 x 12%
900
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EDLI charges
6500 x 0.5%
33
6500 x 1.1%
72
Method-3
Some companies calculate both employer and employee shares on 6500/- in spite of higher
basic salary than 6500.00
Amount
6500 x 12%
780
EDLI charges
6500 x 0.5%
33
6500 x 1.1%
72
Ref:caclubindia.com
EPF scheme allows partial withdrawals for the purpose of marriage/illness/higher
education/house construction etc.
Q. What is the interest on the PF accumulations ?
A : Compound interest as declared by Central Govt. is paid on the amount standing to the credit
of an employee as on 1st April every year.
Q. What is the EPF Interest Rate?
The EPF interest rate of India is decided by the central government with the consultation of
Central Board of trustees. In the past several decades, the interest rate has ranged from 8-12 %
of the balances maintained in the fund. The EPF interest rate notification is available on the
official website of EPF India on an annual basis. The same is communicated through major
dailies in all cities. To see Interest rate over the years from 1952 please click the image to
enlarge.
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Rs 33.967 lakh. And this amount grows into Rs. 1.38 Crores at the time of his retirement!
EPF Benefit
(Image courtesy Livemint)
How is it calculated?
At the beginning of each year there would be opening balance, the amount accumulated till
then. Contribution is made monthly but interest is calculated yearly. On gets interest on opening
balance and monthly contribution. So for next year the new opening balance would be: old
opening balance + contribution throughout the year + interest on the (old opening balance +
contribution)
To see the calculation for each year in above example click on the image below. You can also
play with EPF calculator here.
EPF calculation
Q. How would I know the amount of accumulations in my PF account ?
PF office sends an annual statement through the employer which gives details about the PF
accumulations. The statement contains details like, Opening balance, amount contributed during
the year, withdrawal during the year, interest earned and the closing balance in the PF account.
This statement is sent by the PF department on completion of the financial year. Sample
statement is shown below.
Sample PF statement
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Select PF office
You will get SMS alert from EPFO : EE amount : Rs XXXXX and ER amount Rs:XXXXX as on
<Todays Date>(Account updated upto Date).
EE = Employee Contribution and ER = Employer Contribution on date(shown in Account
updated date) mentioned in your SMS. It does not show current balance of PF Account as on
Today
Q.Which form has to be filled while becoming member of provident fund?
To become a member of the Employee Provident Fund one has to fill Form 11 and Nomination
Form. For more details check out EPFI webpage for Employees. Sample images of the Form 11
and Form 2(front and back) are given below. Click on the image to enlarge.
Form 11
Form 2 Front
Form 2 back
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Pension Benefits
Q: When can an employee start receiving a Pension?
A: A employee can start receiving the pension under EPS only after rendering a minimum service
of 10 years and attaining the age of 58/50 years.However, no pension is payable before the age of
50 years and early pension after 50 years but before the age of 58 years is subject to discounting
factor @ 4% (w.e.f. 26.09.2008) for every year falling short of 58 years. In case of death /
disablement, the above restrictions doesnt apply.
Q: How long the pension is available?
A: Lifelong pension is available to the member and upon his death members of the family
are entitled for the pension.
Q: What is the formula for calculating the monthly pension?
A:Under Employees Pension Scheme, the monthly retiring pension is decided on the
basis of Pensionable Service and Pensionable Salary and is worked out as follows
Monthly pension=( Pensionable salary*Pensionable service)/70
Pensionable Salary is arrived at by considering the average contributing salary immediately
preceding 12 months from the date of exit from the scheme, normally this would be limited to Rs
6,500 p.m. unless certain enhanced contributions are made by the employer with
permission. Pensionable Service is the service in years rendered by the member for which
contributions have been received maximum cannot exceed 35 years
Q: What is the maximum amount of Pension available under EPS?
A: Based on a maximum employment period of 35 years, and maximum contribution of Rs
6500, the maximum amount of pension as per the Pension formula would be = 6500 *
35)/70 = Rs 3,250 per month or Rs. 39,000(3250 * 12) per year.
Q. Is the Monthly Pension paid under EPS just?
The amount of pension is meager. If one would have invested Rs 541 in a recurring deposit at the
rate of 8% for 35 years one would get 12,49,263 as maturity amount. If this maturity amount is put
in buying the Pension plan say LICs Jeevan Akshay VI and put the above amount Rs 12,49,263 in
the premium calculator of LIC with option as Annuity payable for life, one would get montly
pension of Rs 10,150 which is much more than Rs 3250.
In this article we covered about EPF, EPS, the calculation etc. In the next article we shall cover
about how to withdraw or transfer from EPF, EPS. Difference between EPF and PPF? If you find
something missing or incorrect please let us know, we shall correct is As Soon As
Possible(ASAP). Hope you found this article helpful. What are you thoughts on EPF? Does it
make sense to contribute to EPF?
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