An Employee Provident Fund is a pension scheme which is compulsory for Indian organisations. Under this plan, the employer & employee contribute a specific percentage of the salary amount, which gets accumulated, hence providing financial security post-retirement. Under this plan, both the employer & employee contribute 12% of basic salary & dearness allowance to the EPF account. It makes the total contribution 24%. The funds contributed are accumulated throughout their employment, after which they can be withdrawn. It allows total withdrawal of funds post-retirement, though it also allows partial withdrawal before retirement. Though EPF is a pure retirement plan, the EPS part of it works like a Monthly Pension Plan, providing you with a regular stream of income post-retirement.
EPF Eligibility Criteria
Provided are the eligibility parameters to be met to apply for EPF:
- This scheme applies to all states of India.
- An employee earning a salary of INR 15000 per month is required to get registered for an EPF account.
- In case an employee is earning a salary above INR 15000 per month & wants to get registered under EPF, they have to take prior permission from the Assistant PF commissioner.
- It is m&atory for companies to get registered under the EPF program if they have more than 20 employees.
- Companies with fewer than 20 employees can voluntarily register for the EPF program.
What is an EPF Calculator?
An Employee Provident Fund Calculator is an online tool that helps employees estimate the future value of the contributions made towards EPF & hence plan their retirement accordingly. This calculator takes into consideration the age of the employee, per-month salary, contribution rate, expected rate of interest, etc. This tool assists in making a projection of the EPF balance amount, simplifying financial planning by providing clarity on retirement planning.
How to use an EPF calculator?
Provided are the steps to use a Pension Calculator to calculate EPF balance:
Step 1: Enter Your Monthly Basic Salary
Provide your present basic salary, which includes dearness allowance, if applicable.
Step 2: Add Your Current EPF Balance
It requires you to mention the current balance of your EPF account to get accurate results. This step is optional, i.e. not mandatory.
Step 3: Choose Contribution Rates
The default rate of contribution is set at 12% for both the employer & employee.
Step 4: Enter Your Age & Retirement Age
Input the present age along with the expected retirement age.
Step 5: Set Expected Annual Salary Growth
Provide the estimated annual salary growth, which means the percentage of increase in salary expected.
Step 6: Check the EPF Interest Rate
The interest rate declared by EPFO is 8.25%, which can be customised if required.
Step 7: Click on ‘Calculate’.
Next, click on the tab “Calculate”.
Let us understand this concept with the help of an example:
Contribution by employee = 12 x of basic salary
Contribution by Employer
Employer’s contribution = 12% of the basic salary
EPF = 3.67%
EPS = 8.33%
Hence, the contribution made by the employer = 3.67% of the basic salary.
Let us understand with the help of an example
Basic Salary = INR 25,000 per month
Interest rate on EPF = 8.25% per annum
No balance in the EPF account
Tenure = 1 year
Contributions to be made per month:
Contributions made by Employee = 25000 x 12%
= INR 3000 per month
Contributions made by Employer = 25000 x 3.67%
= INR 917.50 per month
Total Contributions made = INR 3000 + INR 917.50
= INR 3917.50 per month
Contributions in an year = INR 3917.50 x 12
= INR 47010
Approximate Interest Over Year
Average contribution = Total Contribution / 2
= 47010 / 2
= INR 23505
Interest amount = INR 23505 x 8.25%
= INR 1938.71
Total EPF balance post 1 year = 47010 + 1938.7
= INR 48948.71
Benefits of an EPS Calculator
Provided are the benefits of an EPS calculator:
- Precise Estimate:
This calculator provides an accurate & precise estimation of the amount which will accumulate in the EPF account at the time of retirement. This calculator takes into consideration certain factors, like age, percentage of contributions made, percentage increase in salary, etc.
- Retirement Planning:
This plan helps implement retirement planning by analysing whether the contributions made help you achieve your financial objectives or not. It also helps to understand the probable rise in savings that can be achieved.
- Flexibility
It allows us to ascertain the results on the corpus amount when different retirement ages or percentage contribution is entered, making it flexible. This lets you build a customisable financial plan & aids in decision-making.
- Convenience:
These calculators can be reached easily, sitting at the comfort of home, i.e. online, allowing one to assess the savings amount until retirement. It is considered to be a user-friendly online tool which saves time & effort, providing quicker results.
- Confidence
It helps build trust amongst the employees to build a retirement plan, & helps in better decision-making, providing financial security.
- Comparison
It helps you compare your retirement objectives with the corpus funds, knowing which can you can fill out the gaps. This helps you build a better retirement plan, securing the financial future.
Conclusion
An EPF calculator is a simple, easy-to-understand, hassle-free method to ascertain the probable returns amount which includes contributions by both employer & employees. It assists you evaluate the growth of your retirement savings to provide you with better retirement planning. It provides you with transparent results, letting you make well-informed decision making. These calculators available online are free-of-cost, which can be accessed from anywhere & at any time. With attractive rate of interests, taxation benefits, flexibility in withdrawal of funds, Employee provident fund, i.e. EPF allows to secure the financial future of the employees. This means employees can embark a secure & smoother financial journey towards their peaceful retirement by having a better understanding & knowledge of investments made by them throughout their life.