10 Things You Must Know About EPF Scheme And How to Calculate The PF Balance

Upon retirement, the employee gets this amount that constitutes of employee contribution, employer contributions and the interest on both. The idea of the Indian government behind the EPF scheme is to encourage savings. Listed below are 10 things that you must know about EPF scheme.

  1. EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. It is managed under the support of Employees’ Provident Fund Organization (EPFO).
  2. It covers every organization having more than 20 employees. A few companies that employ less than 20 persons are also covered in the EPF scheme but on certain conditions and exemptions.
  3. The employer’s contribution towards EPF is 12% + dearness allowance + retaining allowance. The equal contribution is made by the employee also. However, companies having a work force of less than 20 people can contribute only 10% towards the EPF (it applies for both employee and employer).
  4. For private sector employees, the EPF is calculated on their basic salary, which means if the monthly basic salary of an individual is Rs 30,000, the employee contribution towards his or her EPF would be Rs 3,600 a month (12 % of basic pay) while the equal amount is contributed by the employer each month.
  5. According to the EPF Act, for claiming final PF settlement, an employee has to retire from service after serving for 55 years of age. The total EPF balance includes the employee’s contribution + the employer contribution + the accrued interest.
  6. The EPF withdrawal is not taxable if one has completed at least five years of continuous service. It is also applicable to the condition where one has switched jobs in less than five years but transferred the EPF to the new employer.
  7. Withdrawing the PF balance without completing five continuous years of service has tax implications.
  8. Contribution towards EPF is meant to take care of the post-retirement needs. However, one can also withdraw the entire EPF amount or just take an advance during the course of employment to meet specific needs such as buy a house, repay the home loan, medical needs, education or marriage of children, etc.
  9. EPFO has recently allowed members i.e. the contributory employees of the provident fund (PF) scheme to use 90 percent of EPF accumulations to make down payments to buy houses and use their accounts for paying EMIs of home loans.

Calculate employee provident fund balance using EPF Calculator

The EPF balance constitutes of the employees’ contribution + the employers contributions, which is 12% of his/her monthly pay + the dearness allowance. When the Basic Pay plus DA is less than or equal to Rs 15000, the employee contribution is 12% of Basic Pay + DA whereas the employer contribution is 3.67% of the Basic Pay + DA.

EPF Calculator is an ideal tool that can help you calculate your EPF accumulations. You simply have to input some basic information like your age (in years), your monthly basic salary (in rupees), your contribution towards EPF (%), your employers contribution(%), average annual increase in salary you expect (%), age when you intend to retire, current EPF balance (if any), and current interest rate, then click on “Calculate” to get the results instantly.

The EPF calculators work the same way as your EMI calculators, but here they tell you about the savings instead of the expenditures that you will be making in future.

Tax on Early PF Withdrawals

Withdrawing your PF after leaving an organization might sound like a lucrative idea to get hands on the money that you have been saving. But one thing that you must know here is that withdrawing money without completing 5 years in an organization continuously will bring tax implications. The contribution employer making towards the PF along with the interest accrued will become taxable in the year you plan to withdraw your PF. In addition to this, the amount of deduction that was earlier claimed to tax relief under Section 80C will then be added to your total income during the year of withdrawal. Herein, the interest earned on your own contribution towards the PF will also become taxable.

Tax deducted on source (TDS) on PF was introduced by the government on PF withdrawals with the motive to discourage people from premature withdrawal of their PF amount and to promote long term savings. However, if an employee is withdrawing PF after five years of continuous service in an organization than no tax will be deducted. Also, TDS will not be applicable if the employee is transferring PF from one account to another.