What is PF(Provident Fund)? How is PF Calculated on Salary?
Provident Fund (PF) is a retirement benefits scheme for salaried professionals designed to provide them with enough funds after retirement. It is a combined contribution from employees and employers that is deducted from the employee’s monthly salary and deposited in their PF account. Over time, it grows into a sizable amount the employee can redeem after retirement. Every corporate firm with over 20 employees must sign up for an Employees’ Provident Fund. Read on to find out more about what is provident fund and how PF is calculated on salary each month.
What Is EPF in Salary?
Employees Provident Fund (EPF) is a retirement benefit programme that the Employees Provident Fund and Miscellaneous Act of 1952 covers. Employees contribute a specific amount to the programme, and employers must match the same contribution each month. The EPFO or Employee Provident Fund Organisation is responsible for overseeing the scheme. The employee gets a lump sum PF payment at retirement and during the service tenure, including both parties’ contributions and the interest. The PF amount and the interest gained are not taxable when withdrawn, making it a desirable scheme for salaried employees.
The scheme covers all corporate firms with over twenty employees. It also covers some companies with less than twenty employees, though with some exemptions and restrictions. For instance, a firm’s contribution is 10% less if its industry is jute, coir, beedi, brick, or guar gum and has less than twenty employees. The EPFO reviews the EPF interest rates each year. Those who need to learn how to calculate PF amount must understand that the organization calculates the interest rate on each month's ending balance and then for the entire year after the interest rate announcement.
What is UAN in EPFO Portal?
The UAN, or Universal Account Number, is a unique identification number assigned to every member of the Employees' Provident Fund Organization (EPFO) in India. It serves as an umbrella for multiple Member Identification Numbers (Member IDs) allotted to an individual by different employers. The UAN remains constant throughout an employee's career, streamlining EPF management. This centralized system enhances transparency and accessibility for employees to access their EPF accounts, check balances, and manage withdrawals conveniently through the EPFO portal.
Also Read: How to Withdraw Your PF Using the Pandemic Option?
How Does EPF Works?
These contributions accumulate over time and are invested in various financial instruments such as government securities, bonds, and equities.
- Contributions: Employees and employers contribute fixed percentages
- Investment: Funds are invested in securities, bonds, and equities.
- Withdrawal: Upon retirement or resignation, employees can withdraw their corpus.
- Financial Planning: EPF is crucial for long-term financial planning.
- Stability: Provides financial stability during retirement or emergencies.
Differences Between EPF, EPF Pension Scheme (EPS), And EPF Insurance (EDLI)
| Aspect | EPF (Employee Provident Fund) | EPS (Employee Pension Scheme) | EDLI (Employee Deposit Linked Insurance) |
| Purpose | Provides retirement savings to employees. | Provides pension benefits to employees. | Provides life insurance coverage to employees. |
| Contribution | Both employer and employee contribute. | Only the employer contributes. | Only the employer contributes. |
| Eligibility | All salaried employees in India. | Members of the EPF. | Members of the EPF. |
| Contribution Limit | Varies (typically up to 12% of salary). | 8.33% of the employer's contribution. | 0.5% of the employee's basic salary per month. |
| Benefit | Lump sum withdrawal upon retirement. | Monthly pension after retirement. | Lump sum payment to the nominee in case of death. |
| Example | An employee contributes 12% of their salary to EPF, and the employer matches this contribution. | An employer contributes 8.33% of the employee's salary to EPS. | An employer contributes 0.5% of an employee's basic salary to EDLI. |
Note: Please note that the percentages and contribution limits mentioned in the table are indicative and may vary based on regulations and individual circumstances.
Example
EPF (Employee Provident Fund):
The employee contributes 12% of their salary to EPF, which amounts to Rs. 6,000 (12% of Rs. 50,000).
The employer also contributes 12% of the employee's salary to EPF, which amounts to Rs. 6,000.
EPS (Employee Pension Scheme):
The employer contributes 8.33% of the employee's salary to EPS, which amounts to Rs. 4,165 (8.33% of Rs. 50,000).
EDLI (Employee Deposit Linked Insurance):
The employer contributes 0.5% of the employee's basic salary to EDLI, which amounts to Rs. 250 (0.5% of Rs. 50,000).
Schemes Under EPFO
Schemes offered under the EPFO (Employee's Provident Fund Organization):
- Mandatory savings scheme for employees in establishments covered under the EPF Act.
- Both employer and employee contribute a fixed percentage of the employee's salary towards the fund.
- Provides pension benefits to employees upon retirement.
- Contributions made by the employer on behalf of the employee.
- Insurance coverage for employees against death or disability due to accidents.
- Benefits linked to the employee's deposit in the EPF account.
Also Read: How to Download and Fill Form 15G For PF Withdrawal?
How to Calculate PF on Salary?
The Indian government sets up rules to calculate the funds to be allocated to the EPF account. Need to know what PF account number is? It is assigned to an account where the employees and the employers deposit the PF amount. Each employee’s PF comprises two types of contributions: the employee's and the employer's contributions.
- The Employee’s EPF Contribution: The employees must contribute 12% of their basic salary and Dearness Allowance each month to the PF account. For instance, if a working individual’s basic monthly salary is ₹ 15,000, their monthly contribution towards the EPF account will be 12%, which is ₹ 1,800.
- The Employer’s EPF Contribution: Out of 12%, the employer contributes 8.33% to the Employees' Pension Scheme and the remaining 3.67% to the EPF. Therefore, 3.67% of ₹ 15,000 would be ₹ 550. Therefore, the total monthly EPF contribution for an employee earning a salary of ₹ 15,000 would be ₹ 2,350.
| Contribution By | Contribution Per Month |
| Employee | 12% |
| Employer | 12% |
| Total Contribution | 24% |
How to Calculate PF Amount at Retirement?
Those who want to know how to calculate PF must follow these steps to determine the total amount they will receive at retirement:
- Enter the employee’s date of birth and maximum retirement of 58 years in the relevant box.
- Input the basic monthly salary and the expected increase in a year.
- Provide the employee's and the employer's contribution amount.
- Offer the federal government interest rates earned on the EPF balance.
- Use the EPF calculation formula to complete the computation process and get the final result based on this information.
Also Read: EPF Balance Check Online on Mobile, SMS, Call, Umang App
Mathematical Formula to Calculate the Provident Fund
The organization determines the month-wise closing balance after notifying the financial year’s interest rate. One can simply calculate the annual interest by adding up the running month's balance, multiplying it by the interest rate, and dividing it by 1200.
For example, if an employee earns a basic salary of RM 10,000 per month and the EPF contribution rate is 11%, the employee's contribution to the EPF would be RM 10,000 x 11% = RM 1000 per month
EPFO Withdrawal Rules
There are three circumstances under which you can withdraw 100% of your EPF:
- Upon reaching the age of 58.
- If you are unemployed for two months or more.
- In the event of the member's premature death, the entire corpus is given to the appointed nominee.
- If you wish to withdraw from your EPF account before retirement, there are several terms and conditions to consider.
Conditions to Withdraw Employee Provident Funds
Here are the conditions under which EPF withdrawals are permitted, offering employees flexibility and support in managing their financial needs.
- Retirement: Employees can withdraw EPF upon reaching retirement age, typically around 58-60 years, as per government regulations.
- Unemployment: Individuals who remain unemployed for more than two months can withdraw a portion of their EPF savings.
- Medical Expenses: EPF can be withdrawn for medical treatment purposes, covering the employee, spouse, children, or dependent parents.
- Home Loan Repayment: Partial withdrawal is allowed for the repayment of home loans, subject to certain conditions and limitations.
- Education: EPF can be utilized for higher education expenses of self, spouse, or children.
- Marriage: Withdrawal for marriage expenses is permitted after a specific service period.
- Renovation/Construction: Funds can be withdrawn for renovating or constructing a house.
- Emergency: EPF can be accessed in cases of financial emergencies such as natural calamities or severe illnesses.
- Disability: Partial or full withdrawal is allowed in cases of permanent disability.
- Migration: Withdrawal for individuals migrating abroad permanently is permitted, subject to certain conditions.
Types of Provident Funds
There are several types of provident funds, each serving different purposes and administered by various entities.
- Employee Provident Fund (EPF): This is a mandatory retirement savings scheme in many countries, where both the employee and employer contribute a certain percentage of the employee's salary towards the fund.
- Public Provident Fund (PPF): A long-term investment scheme in India offered by the government, open to both employed and self-employed individuals.
- Voluntary Provident Fund (VPF): This is an extension of the EPF, where employees have the option to contribute more than the mandatory amount to enhance their retirement savings.
- Employees' Pension Scheme (EPS): A pension scheme in India that forms part of the EPF. It provides pension benefits to employees upon retirement, disability, or death.
- State Provident Fund (SPF): Managed by state governments in India, SPF is similar to the EPF but applies to specific states.
- International Provident Fund: Some multinational companies or organizations may establish their own provident funds for employees working across different countries.
Types of EPFO Forms and their Purposes
These forms streamline different processes within the EPFO system, ensuring efficient management of provident fund accounts. Below is a tabular representation of EPFO forms and their purposes:
| Form | Purpose of the Form |
| Form 2 | For nominating and declaring |
| Form 5 | For Registering |
| Form 5 IF | For availing a claim under the EDLI scheme |
| Form 10C | For availing withdrawal benefits or scheme certification. |
| Form 10D | For availing monthly pension. |
| Form 11 | For transferring the EPF account. |
| Form 14 | For purchasing an LIC policy. |
| Form 15G | For availing tax-saving benefits on interest. |
| Form 19 | For settling employees' provident fund. |
| Form 20 | For settling employees provide a fund in case of death. |
| Form 31 | For EPF withdrawal. |
Benefits of Provident Fund
EPF is a retirement scheme that ensures that employees receive sufficient funds during their retirement period. Anyone working for a government or private organization can take advantage of the scheme. After knowing what PF is, one would also want to know the benefits it offers.
- Loan Against the PF: A PF account holder is eligible for a loan against their PF balance under emergencies. However, the borrowers must repay the amount within 36 months of loan disbursal.
- Free Insurance: If the employee passes away during the job, they get free insurance of up to ₹ 7 Lakh under the EDLI (Employees Deposit Linked Insurance) scheme. Moreover, the PF account holder must contribute to the insurance premium for the death cover.
- Housing Loan: A PF account holder can withdraw up to 90% of their total PF balance for purchasing or constructing a new home. According to the EPFO rules, an account holder can also take a Home Loan to buy land.
- Partial Withdrawal for Financial Emergencies: Under medical emergencies or other specific circumstances, the PF account holder can partially withdraw their PF balance to tackle the situation.
- A Provision for Pension: A PF account holder can receive a pension after 58 years of age. To qualify for the pension, they must regularly contribute to their PF account for at least 15 years. The major benefit of the pension comes from the employer’s contribution towards the EPF account. That is because 8.33% of their total PF contribution goes to the EPF account, benefitting the employee.
How to Check Your PF Balance
Checking your Provident Fund (PF) balance is quick and easy with several available platforms. It helps you stay informed about your retirement savings and track employer contributions. Regular monitoring ensures accuracy and keeps you financially prepared. You can access your PF balance using online and offline methods. Here are different platforms to check:
- UMANG App – Download the app, log in with your UAN, and check balance.
- EPFO Portal – Visit epfindia.gov.in, log in using your UAN and password.
- Missed Call Service – Give a missed call to 9966044425 from your registered mobile number.
- SMS Service – Send “EPFOHO UAN ENG” to 7738299899 (ENG can be replaced with your preferred language code)
- Employer – Some companies provide PF balance updates via salary slips or internal HR portals.
Tax Benefits of EPF Payments
According to Section 80C of the IT Act 1961, employed professionals can receive tax advantages of up to ₹ 1.5 Lakh for PF account contributions. However, employees cannot deduct taxes from their contributions if they make them to the EPF account for under five years. The income tax is withheld at the source if the contribution period is less than five years or if the employee removes the PF contribution before that period.
Eligibility Criteria for Employee’s Provident Fund
To be eligible for the Employee's Provident Fund (EPF), an individual must be fulfill the following eligibility mentioned below:
- Employed by an organization covered under the EPF Act, typically with 20 or more employees.
- Basic salary of up to Rs 15,000 per month.
- Both employer and employee must contribute a fixed percentage of the employee's salary towards the EPF account.
- Complete necessary paperwork and documentation as required by the employer and the EPFO (Employee's Provident Fund Organization) for enrollment.
Steps to Claim Provident Fund
To claim the PF online you need to follow the steps mentioned below:
- Obtain UAN (Universal Account Number): Log in to the EPFO portal and obtain your UAN if you haven't already.
- Check Eligibility: Ensure you meet the eligibility criteria for withdrawing PF, such as unemployment for more than two months.
- Fill Form Online: Log in to the EPFO portal and fill out the online PF withdrawal form.
- Submit Required Documents: Upload necessary documents like Aadhaar card, PAN card, bank details, and canceled cheque.
- Track Claim Status: Monitor the status of your claim online through the EPFO portal.
- Receive Funds: Once approved, the PF amount will be deposited directly into your bank account.
Conclusion
Hope this article explains what the full form of PF is, what PF is in salary, and other queries related to PF, including how to calculate PF on salary. So, open your PF today and enjoy its various advantages while securing your future. If you need money in an emergency, instead of withdrawing money prematurely, get a personal loan online at a competitive interest rate through an instant personal loan app.
Frequently Asked Questions
1. How is PF calculated in salary?
PF is calculated based on a fixed percentage of salary.
2. Can I withdraw my PF?
Yes, you can withdraw your PF under certain conditions.
3. Can I withdraw 100% of PF?
No, you cannot withdraw 100% of your PF balance. Partial withdrawals are allowed for specific purposes like retirement, education, etc.
4. Can I check my PF balance?
Yes, you can check your PF balance online through the official portal or by sending an SMS to the designated number.
5. What is the formula for PF calculation?
The formula for PF calculation is: PF = (Basic Salary + DA) × 12% (Employee) + 12% (Employer Contribution)
6. What is the PF deduction for the Rs 40,000 salary?
The PF deduction for Rs 40,000 salary is Rs 4,800 (12% of Basic Salary + DA).
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