Bytes - Your weekly dose of
investments, taxes, finance & more.

Making Managing Money Smarter & Taxes Less Taxing

New Video Every Friday

Blog

New ITR Forms out
for AY 2020-21

Here's what changed

Building Customer Focused Business

97% Customer Retention

95% CSAT

10x Annual Growth

previous arrow
next arrow
Slider

EPF ( Employee Provident Fund ) - Calculation, Benefits and Comparison

author portrait

Hiral Vakil

EPF
EPF Calculation
Tax Saving Investments

Employee Provident Fund (EPF) is nothing but a savings scheme for employees.  Every month a portion of your salary is deducted towards EPF. This fund can be availed when you are unable to work or when you retire. This scheme was introduced by the Government of India in order to inculcate the habit of savings within salaried individuals. EPF is monitored by EPFO (Employees Provident Fund Organisation) and it comes directly under the jurisdiction of the Government. This article will help you get a clear idea on various aspects of EPF.

How is the Interest on EPF Calculated?

Employee’s Contribution to PF: 12% of your Basic Salary + DA (Comes out of your Salary).

The Employee Contribution goes entirely towards the EPF Scheme.

Employer’s Contribution to PF: 12% of your Basic Salary + DA (Comes out of your Employer’s Pocket).

The Employer Contribution gets split up as follows:

Example

Let us take an example to understand these calculations better:

Note: The current per annum rate of interest is 8.5% hence, the monthly rate of interest will come to 0.708% (8.5/12)%

Ms Amrita works at a start-up and earns a monthly salary of INR 20,000. Ms Amrita’s contribution of 12% is directly transferred to her Employee Provident Fund Account, in this case, INR 2,400. The contribution of Amrita’s employer will be divided into two parts: 3.67% towards EPF account, INR 734 (20,000*3.76%) and 8.33% towards EPS, INR 1,666 (20,000*8.33%)

So now the total contribution towards Ms Amrita’s EPF account is INR 3,134 (2,400 + 734)

The monthly interest accrued will be INR 22.18 (INR 3,134*0.708%)

One has to note that the interest earned in a month is credited to the account only by the end of the year.

 

What are the Tax Benefits of an EPF Scheme?

Employee’s contributions to EPF was tax-deductible under section 80C, while the employer’s contribution is completely tax-free. However, as per the recent announcement in Budget 2021,  interest earned on annual PF contribution exceeding INR 2.5 lakhs from April 2021 will now be taxable.  Any withdrawal after the specified period (5 years) is exempt from income tax.

Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore
Income Tax Calculator
Calculate income tax liability for FY 2020-21. Compare tax liability as per New vs Old Tax Regime.
Explore

What is the Current EPF Rate of Interest?

An interest rate is determined by the government and central board of trustees. Any interest earned towards credit standing in one’s PF account is deposited on 1st April of every year. Historically PF has earned interest between 8% to 12%. For FY 2019-20 interest rate is 8.5%. Interest accumulated during employment is taxfree. 

Want to check your EPF balance?
You can read our article here for a step by step guide on how to check your balance.
Read More
Want to check your EPF balance?
You can read our article here for a step by step guide on how to check your balance.
Read More

What are the Different EPF Forms?

An EPF Form is very important and mandatory if an employee wants to carry out any activity in their EPF Account. These forms are used for processes like a nomination, to avail tax deduction, account transfer, avail monthly pension etc.

Below-mentioned is the list of forms serving different purpose:

Form Purpose of the Form
Form 2 For Nomination and Declaration
Form 5 For Registration
Form 5IF To avail a claim under EDLI Scheme
Form 10C To avail withdrawal benefits or scheme certification 
Form 10D To avail monthly pension
Form 11 To transfer EPF account
Form 14 To purchase LIC policy
Form 15G To avail tax-saving benefits on interest
Form 19 For settling EPF
Form 20 For settling EPF in case of death
Form 31 For EPF Withdrawal

Comparison of Different Tax Saving Investments Schemes

Investments Returns Lock-In-Period Risk
ELSS  12-15%* 3 Years Market Risk
FD 7-9 %*  5 Years Risk-Free
NSC 8% 5 Years Risk-Free
NPS 8-10%* Till Retirement Market Risk
PPF 8% 15 Years Risk-Free

All the above tax savings investment options are tax-deductible upto INR 1,50,000. (*Subject to change)

Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]
Ask an Expert (Income Tax)
Talk to an expert via call, whatsapp or messages. Ask questions about tax returns, applicability & compliance etc.
[Rated 4.8 stars by customers like you]

FAQs

Can an employee contribute to the EPF after leaving the service?

No, it isn’t possible to continue contributing to EPF once he/she has left the service. EPF mandates that an employer contributes the same amount as the employee. But since an Individual has left service, he/she cannot be deemed an employee.

What are the measures by which the PF amount is recovered from a defaulting employer?

In case your PF account is lost due to a defaulted employer, these are the ways in which you could recover it:
– Attachment of Bank Accounts
– Realization of dues from Debtors
– Attachment & Sale of properties
– Arrest and Detention of the Employer
– Action under Section 406/409 of Indian Penal Code
– Section 110 of the Criminal Procedure Code
– Prosecution under section 14 of the EPF & MP Act,1952

How a member is informed about the non-payment of contributions recovered from the wages of the employee but not paid to the EPF?

The Annual P.F. Statement of Account/Member Passbook will indicate the amount paid by the employer. The default period in a year is thus made known to the members. In the current scenario if the member has activated her/his UAN the non-payment/payment of contributions can be verified every month through the e-passbook. Currently, members also receive SMS on their registered mobile phones on credit of monthly contribution into their PF account.

How can one convert an EPF account into VPF account?

The process to convert to VPF account is very simple. All one needs to do is inform the employer regarding opening a VPF account and mention the amount that he/she will be contributing to the account.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

Continue the conversation on TaxQ&A

1 more reply

Participants

Close Bitnami banner
Bitnami