What is PF(Provident Fund)? How is PF Calculated on Salary?

What is UAN in EPFO Portal?

Universal Account Number or UAN is a unique number given to each member of Employees’ Provident Fund Organization or EPFO in India. This acts as an umbrella for various Member Identification Numbers (Member IDs) given to a member by different employers. The UAN remains the same throughout the career of an employee and makes it easier to manage the EPF. It also improves transparency and provides convenience for employees to access their EPF accounts, check their balance, and manage their withdrawals etc. on the EPFO’s portal.

Also Read: Employee Provident Fund (EPF) New Rules That You Should Know

How Does EPF Works?

Over the years, the contributions are invested in government securities, bonds, equities, and other options.

• Contributions: An employee and employer contribute a percentage of monthly salary
• Investment: The money is invested in government securities, bonds, and equities
• Withdrawal: Employees may withdraw the corpus at termination and following retirement.
• Financial Planning: EPF plays an important role in long-term financial planning.
• Stability: EPF can help provide stability in retirement or during emergencies.

Differences Between EPF, EPF Pension Scheme (EPS), And EPF Insurance (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

Plans available under the EPFO (Employee's Provident Fund Organization):

• Compulsory savings plan for workers in establishments subject to the EPF Act.
• Both the employer and employee contribute a certain percentage of the employee's wage to the fund.
• Provides pension benefits to employees when they retire.
• Employers make contributions for employees.
• Insurance for employees against death or disability resulting from accidents.
• Benefits are linked to the employee's deposit to 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.

1. 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. 
2. 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. 

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: 

1. Enter the employee’s date of birth and maximum retirement of 58 years in the relevant box.
2. Input the basic monthly salary and the expected increase in a year.
3. Provide the employee's and the employer's contribution amount.
4. Offer the federal government interest rates earned on the EPF balance.
5. Use the EPF calculation formula to complete the computation process and get the final result based on this information.

Also Read: Learn about your and your employer's EPF contributions

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.

1. Retirement: Employees can withdraw EPF upon reaching retirement age, typically around 58-60 years, as per government regulations.
2. Unemployment: Individuals who remain unemployed for more than two months can withdraw a portion of their EPF savings.
3. Medical Expenses: EPF can be withdrawn for medical treatment purposes, covering the employee, spouse, children, or dependent parents.
4. Home Loan Repayment: Partial withdrawal is allowed for the repayment of home loans, subject to certain conditions and limitations.
5. Education: EPF can be utilized for higher education expenses of self, spouse, or children.
6. Marriage: Withdrawal for marriage expenses is permitted after a specific service period.
7. Renovation/Construction: Funds can be withdrawn for renovating or constructing a house.
8. Emergency: EPF can be accessed in cases of financial emergencies such as natural calamities or severe illnesses.
9. Disability: Partial or full withdrawal is allowed in cases of permanent disability.
10. Migration: Withdrawal for individuals migrating abroad permanently is permitted, subject to certain conditions.

Types of Provident Funds

Various categories of provident funds fulfil distinct functions and are administered by different authorities.

1. Employee Provident Fund (EPF): In many countries, the EPF is made mandatory as a retirement savings plan. The employer and employee each contribute a percentage of the employee's earnings to the EPF on a regular basis.
2. Public Provident Fund (PPF): The PPF is a long-term investment programme for retirement savings available in India to both working individuals and self-employed individuals, and is sponsored by the Indian government.
3. Voluntary Provident Fund (VPF): The VPF is an optional component of the EPF. The employee has an option of contributing more than the mandated percentage set forth by the EPF system.
4. Employees' Pension Scheme (EPS): The EPS is a pension scheme available in India as a part of the EPF. It is a benefits programme for the distribution of a pension once an employee retires and/or if there is the unavailability of an employee due to disability and/or death.
5. Statutory Provident Fund (SPF): The SPF is a type of provident fund that is administered by state governments separate from the EPF plan.
6. International Provident Fund: Some multinational corporations, or similar organizations, may engage in some sort of plan or instrument for their employees working in other 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:

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:

1. Employed by an organization covered under the EPF Act, typically with 20 or more employees.
2. Basic salary of up to Rs 15,000 per month.
3. Both employer and employee must contribute a fixed percentage of the employee's salary towards the EPF account.
4. 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:

1. Obtain UAN (Universal Account Number): Log in to the EPFO portal and obtain your UAN if you haven't already.
2. Check Eligibility: Ensure you meet the eligibility criteria for withdrawing PF, such as unemployment for more than two months.
3. Fill Form Online: Log in to the EPFO portal and fill out the online PF withdrawal form.
4. Submit Required Documents: Upload necessary documents like Aadhaar card, PAN card, bank details, and canceled cheque.
5. Track Claim Status: Monitor the status of your claim online through the EPFO portal.
6. 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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