EPF is being implemented by the Government agency EPFO (Employee Provident Fund Organization) which provides financial security to the employees by making a small saving on periodic basis from their salaries .A part of the employee’s monthly salary is saved in the provident fund which provides lifelong financial security to the employees every after their retirements. Employee Provident fund Organization is a statuary body and is controlled and regulated by the Labor and Employment Department of the Government. A part of the employee’s salary is contributed to the Employee Provident Fund .It comprises of two components- one is the provident fund and another is the Employee Pension Scheme and the proportion of the contribution is 12 % of the basic salary + DA and employer’s contribution is 12 % out of which 8.33 % is contributed towards the Employee’s Pension Scheme (EPS) and 3.67 % goes into the provident fund.
EPF-How it works
When an employee joins an organization and starts working, both the employee and the employer contributes 12 % of the gross income and 3.67 % is contributed by the employer to the EPF fund and remaining 8.33 % from the employer’s side goes into Employee Pension Scheme (EPS).For example if an employee salary is INR 10,000, employer will contributes 8.33 % of it towards the pension fund and 3.67% of it will go into the Employee Provident Fund. EPF scheme is continued as long as a person is working and the investment in EPF also generate interest rate from 8-12% as per the provision of the Government of India and the Employee Provident Fund Organization .The interest is paid by the Government on per annum basis and the amount an employer contributes towards the EPF is exempted from taxes in accordance to the section 80 C of the income tax Act, 1952.
Calculation of EPF:
- Calculation of 12 % of the employee’s gross salary as the employee’s contribution towards provident fund
- Computation of 8.33 % of the gross salary as the employer’s contribution towards the Employee Pension Scheme (Some companies calculate the employer’s share in the EPF up to the maximum amount of INR 15000).
- Remaining 3.67 % of the employee’s income goes as employer’s contribution into the EPF
Benefits of Employee Provident Fund:
- It provides a platform through which an employee can save a proportion of their salaries as savings and these savings can be used by the employees after retirement or when they are rendered workless due to some bad circumstances.Thus it aims at providing long term financial security to the employees by contributing a mere fraction of their salaries to the provident fund.
- An employee can plan his retirement and can get a continuous interest which is exempted from taxes and it also helps him in case of emergency when he needs funds and is in a need to borrow money.
- Also for special purposes, one can withdraw money from the EPF like in case of marriage ,buying a house, education but that can be done after fulfillment of certain conditions like one needs to be in job for seven minimum years and can withdraw 50 % of the