Social security is a vital part of our modern world, providing protection and financial support to people across the globe. In India, the Provident Fund (PF) system has been an integral part of this since 1925, with the introduction of the Provident Fund Act. This act laid the foundation for a reliable retirement scheme for millions of Indians.
If you are employed in India, a portion of your salary likely goes towards the Employees Provident Fund (EPF). This makes the PF calculation formula an essential part of payroll management and personal financial planning. Though it might seem complicated at first, calculating PF is actually quite straightforward.
What is EPF?
The Employees Provident Fund (EPF) is a retirement savings scheme managed by the Employees Provident Fund Organisation (EPFO). This scheme is applicable to employees of private companies with 20 or more workers. Under this, both the employee and employer contribute a portion of the salary to the fund each month. Upon retirement, the employee receives a lump sum, which includes the contributions and the accumulated interest.
EPF Calculation Basics
To understand the PF calculation formula, there are three key components you need to consider:
- Employee’s Contribution: 12% of Basic Salary, including Dearness Allowance (DA).
- Employer’s Contribution: Out of the employer’s contribution, 8.33% is directed towards the Employee Pension Scheme, while 3.67% goes into the employee’s EPF account.
- Interest: The EPF interest rate is fixed by EPFO, which is currently set at 8.25% for FY 20223-24.
Step-by-Step Guide on How to Calculate PF using TrackMyPF app
Here’s how you can calculate your PF using the TrackMyPF app:
- Step 1: Download the TrackMyPF Balance by Finnable app from Google Playstore or Apple iStore.
- Step 2: Register using your Universal Account Number (UAN) and complete the necessary authentication.
- Step 3: Enter your basic salary, dearness allowance, and current EPF balance, if applicable.
- Step 4: The app will automatically calculate your PF contributions, interest accrued, and the projected corpus at retirement.
Advantages of Using TrackMyPF for PF Calculation:
- Accuracy: Automated calculations reduce the chances of manual errors.
- Real-time insights: You can track how your contributions grow with time.
- User-friendly: The app provides a simple and quick way to manage your PF calculations.
Step-by-step Guide on How to Calculate PF on Salary Manually
To calculate EPF on salary, gather the following information:
- Basic salary
- Dearness Allowance
- Duration of employment
- Current EPF balance (if any)
- Existing EPF interest rate
Now, let’s follow these steps for PF calculation on salary:
Step 1: Calculation of Employee’s Contribution
This will be 12% of the salary (basic + dearness allowance). For instance, if the salary is ₹20,000, the employee’s contribution will be 12% of ₹20,000), which amounts to ₹2,400
Step 2: Calculate Employer’s Contribution
The employer’s contribution is split into two parts:
(i) ₹734 (3.67% of ₹20,000) goes to the EPF account, and
(ii) ₹1,666 (8.33% of ₹20,000) is contributed to the Employee Pension Scheme.
Step 3: Calculation of Interest
On a total contribution of ₹3,134 (₹2,400 + ₹734), interest will be calculated at 8.25% per annum. Thus, the monthly interest amount is computed as: ₹3,134 x 8.25% / 12 months, totaling ₹2154
If you have an existing balance in your EPF account, it will also be factored into the interest calculation for subsequent months.
Benefits of PF Contribution
Contributing to the PF has several advantages:
- Retirement Savings: Ensures financial security during retirement.
- Employer Contribution: Employers add to your PF, growing your retirement corpus.
- Tax Benefits: Contributions are eligible for tax deductions under Section 80C.
- Compound Interest: Helps your savings grow faster over time.
- Loan Facility: You can take a loan against your PF for purposes like home purchase or medical emergencies.
- Early Withdrawals: Allowed for specific needs like buying property or medical treatment.
- Transferable: PF accounts can be transferred if you change jobs.
- Post-Retirement Income: You can opt for a pension through the Employees’ Pension Scheme (EPS).
Tax Advantages of PF Contribution
Here are the tax benefits of PF contributions:
- Tax Deduction under Section 80C: You can claim up to ₹1.5 lakh in deductions for your EPF contribution.
- Tax-Free Interest: The interest earned on EPF is exempt from income tax.
- Tax-Exempt Withdrawals: After five years of continuous service, your PF withdrawal is tax-free.
- No TDS on Withdrawals: PF withdrawals made after five years do not attract any TDS.
How to Use a PF Calculator to Calculate PF on Salary
Manually calculating PF on salary can be tedious. With just three simple steps, you can quickly ascertain your total retirement corpus. Here’s how:
- Enter your present age, retirement age, current salary, and expected salary growth.
- Check for any existing EPF balance on the EPF portal. If available, enter the amount.
- The calculator will automatically consider the applicable interest rate and provide you with the corpus amount instantly!
Frequently Asked Questions
1. What is PF (Provident Fund) in salary?
The Provident Fund is a retirement savings scheme for Indian employees, calculated as a fixed percentage of their salary to determine deductions and retirement savings.
2. How to calculate PF on salary step-by-step?
To calculate EPF on salary, add your basic salary and dearness allowance, then compute your contribution at 12%. Next, determine your employer’s contribution (typically 3.67%) and sum both contributions for the total PF amount.
3. What are the key components, rates, and rules involved in PF calculation on salary?
Key components include employee/employer contributions and interest. EPFO sets the interest rate, currently at 8.25%. Employees contribute 12% of salary + DA, while employers contribute 3.67% to the employee’s PF and 8.33% to the Employee Pension Fund.
4. When will PF interest be credited?
EPF contributions are credited to your EPF account monthly, while interest for the year is credited at the end of the financial year.
5. How much PF is deducted from salary?
Typically, 12% of the basic pay is deducted for PF.
6. What are the benefits of using a PF calculator?
An EPF calculator simplifies estimating the future balance in your EPF account at retirement.
Conclusion
Understanding how to calculate PF (Provident Fund) on salary is vital for both employers and employees. It serves as a legal requirement and a financial planning tool, ensuring a secure future. By following the steps outlined, you can achieve accurate PF calculations whether you are an employee aiming to maximize your savings or mastering the art of PF calculation. Using a PF Calculator simplifies the process of determining your PF contribution and retirement corpus.
Simplify your EPF management with TrackMyPF by Finnable. Track your balance, view your passbook, and stay updated. Download the app today on Google Play Store and Apple App Store
