Kolkata: Long term compounding embodies one of the most potent forces of mathematics and EPF, or Employees’ Provident Fund, depends on the force of compounding over the very long term to create significant amounts at the time of retirement of an employee. The fund is created with contributions from both the employee and the employer. The rules of EPF is administered by the EPFO (Employee’s Provident Fund Organisation).
EPF came into existence in India in 1952 via an Act in Parliament. It is an essential part of employee welfare in the country and creates a significant amount payable both as a lump sum payment at the time of retirement. EPFO also pays a monthly pension to every employee who has completed a minimum of 10 years of service. The earliest one can claim pension — referred to as EPS — is at the age of 50.
How is EPF calculated on salary
EPF is calculated with two streams of contributions down the years. One, a 12% (of basic + DA) of the salary of an employee and two, a 3.67% from the employer. These contributions are taken every month directly into the EOPF account of the employee. On top of this, there is an interest component. The rate of interest in FY24 was set at 8.25% by the EPFO. Please note that the interest is calculated every month. However, the entire interest accrued is deposited into the account at the end of the financial year.
How much PF on Rs 12,500 initial salary
Age: 21 years
Age of superannuation: 58 years
Tenure of service: 37 years
Rate of increment: 5%
EPF corpus at 58 years: Rs 1,13,51,556 (Rs 1.13 crore)
Contribution of employee: 12% of salary (Basic + DA)
Contribution of employer: 3.67% of salary (Basic + DA)
If the same calculation is repeated keeping all factors unchanged except the rate of salary increment, the final corpus will change significantly. If a rate of increment of 10% is applied, the final amount available to the employee at the age of 58 will stand at Rs 2,91,99,412 or Rs 2.91 crore. You can check the calculation yourself and draw up your own estimate using an online free EPF calculator.
EPF or Employees’ Provident Fund is one of the most potent social security schemes for formal sector employees in India. It draws of predefined contributions from an employee and his/her employer every month to build a significant corpus for the post-retirement life of the employee and his/her family members. Personal Finance Business News – Personal Finance News, Share Market News, BSE/NSE News, Stock Exchange News Today
