The Employees’ Provident Fund, or EPF, is valued by all employees for its quiet, secure and tax-efficient capital-building character in India. It is quite apparent that EPF generates a sizeable pool of funds for an employee if he/she gets a significant salary every month. However, an EOF calculator will demonstrate how an employee with even a relatively low salary will receive a significant amount of money at the time of retirement from his/her EPF account.
The point to remember here is that by salary one means basic salary + dearness allowance (DA) for the computation of provident fund. No other component of the salary is of any relevance here.
Let us assume that an employee gets a salary (basic + DA) of Rs 10,000 a month. According to the rules 12% of this amount (Rs 1,200) will be deducted from his/her salary and credited to the EPF account every month. Also, each month the employer will contribute 3.67% (Rs 367) to it while 8.33% (Rs 833) will be put in an account meant to pay a pension (EPS) from the age of 58.
Let us also assume for all the calculation that EPF pays an interest rate of 8.5% – the rate which was declared for FY24 – which will remain effective for all the years of employment.
Basic + DA = Rs 8,000
Let’s also assume this employee begins earning at the age of 25. If the employee gets paid Rs 8,000 a month, he/she will accumulate an amount of Rs 45,09,112 (or Rs 45.09 lakh) by the time he/she turns 58. Salary increment at the rate of 5% has been assumed in this case.
Basic + DA = Rs 9,000
Let’s consider a situation where the employee gets a basic salary and DA of Rs 9,000 at the age of 25. Here, too, the increment of 5% has been considered. The total corpus amounts to Rs 51,72,307 (Rs 51.72 lakh) at 58 years.
Basic + DA = Rs 10,000
If the employee gets an initial salary of Rs 10,000 a month, the total pool generated at the age of 58 is 58,56,851 (Rs 58.56 lakh). In this case too, we have assumed 5% increment. Therefore, even if you get a low salary, creating half a crore at the time of retirement is no big deal for an employee.
The Employees’ Provident Fund is designed to secure financial security among employees of the organised sector in India. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
