How EPF Works
Those who deducting PF contribution and expecting PF return in future might be thinking how EPF works and where does EPF get invested so that it can able to provide return to employees after retirement.
This topic is generally hidden to Public. Let us focus some light on this topic. Those who provide EPF contribution must be curious to know about How EPF Works .
To know about the business of EPF, we must know about the controller of EPF and what are the services provided in EPF. Most importantly how EPF generate income to provide secured return to the employee after superannuation or retirement.
EPF is controlled by Employee Provident Fund Organization coming under the ministry of Labour employment. This government body looks after security of EPF fund collected from employer, ensure other scheme like pension and insurance and coordinate to Tax department for tax benefits.
How EPF is calculated from Salary ?
EPF is calculated from basic salary and dearness allowance instead of gross Salary. EPF employee contribution is 12% of basic and dearness allowance.
Follow : How PF is calculated ?
Calculation Formula :
EPF amount = 12%*(Basic+ Dearness Allowance)
Calculation example :
Case:1
If, Basic=12,000, Dearness Allowance=3,000, Then EPF amount = 12%*(12,000+3,000)= 1,800
Case:2
If, Basic=15,000, Dearness Allowance=3,000, The PF amount = 12(15,000+0)=1,800
Here in this case, remember,
Calculation ceiling of EPF is 15,000. If basic and dearness allowance is less than 15,000, then both basic and DA is added to calculate EPF. If both basic and DA exceeds 15,000, then only basic is considered for EPF calculation.
Employer part and employee part :
In EPF , both employer and employee are bound to share contribution to EPFO. Employee share is 12% of basic and DA whereas employer share is 13% of basic and DA. Extra 1% of employer share is segregated as EDLI and admin charges.
What is EDLI & why it is important ?
Full form of EDLI is Employee Depository Linked Insurance. It plays important role because EDLI serve as death insurance. It is provided to dependent family member of employee after death.
How EPF Pension works ?
Pension is scheme of EPF. Pension is given to employee after retirement of superannuation. Some portion of EPF contribution is kept in Pension account to secure a recurring income to employee. 8.33% of basic and dearness allowance from employer share is considered as pension contribution.
Pension Contribution
From 12% of employer share, 8.33% of basic and dearness allowance is considered as pension contribution. Rest 3.67% of basic and DA is deposited for EPF.
Pension calculation formula
Pension amount = Pensionable Salary* Pensionable Service/70. Here Pensionable salary means the basic salary and dearness at the time of retirement or superannuation and Pensionable service the total years of service rendered by the employee at the time of retirement or superannuation.
Pension withdrawal procedure
Pension withdrawal procedure is purely online. One can withdraw its pension amount by logging into UAN portal. In UAN portal home page go the Online Service, then click on withdrawal, and then click on Pension Form.
After fill up all the required information like, Bank account details , Pension account details, click on Submit to process Pension claim settlement.
How EPF Grievance works ?
EPF grievance is a separate window to understand and resolve the issues of user. EPF has developed a separate website called EPFiGMS for receive EPF grievances.
Why EPF grievance is important ?
When user find difficulty in any matter related to EPF , Pension, EDLI, he can simply resister his query in grievance portal. Then solution can provided within stipulated time period.
How to apply EPF grievance ?
Go to EPFiGMS website. Chose the matter related to like EPF, Pension or any other. Enter your details like UAN number, PF number etc. to register you query. You can also track the status of lodged grievance and send reminder if not attended from long time.
How EPF interest rate works ?
Interest rate helps to grow the accumulated fund collected from employee every month. Every year interest rate is multiplied the previous closing amount and that amount is carried forward to next year. That amount is considered as opening amount for the new accounting year.
What is the interest rate of EPF ?
Interest rate of Employee provident Fund varies every year. The rate is depend on the GDP (Gross Domestic Product) of the entry for the particular year. For the year of 2024 it is 8.25%
Is compound or simple interest rate applicable to PF growth ?
EPF money grows every year. Interest rate applicable to EPF is Compound Interest rate.
Is interest amount of PF is taxable ?
Yes, earlier interest amount of PF was not taxable, but now the amount is taxable. Tax celling is defined as per PF rule.
Possible Q & A- How EPF Works
How interest rate is calculated
Interest rate is calculated based on the GDP of the country for that particular year. When GDP increases there is chance of increment of PF interest rate in that particular year.
Is EPFO Government or Private ?
EPFO, Employee Provident Fund Organization is a central Government body.
How EPFO earns money ?
EPFO is non profit making Central Government Organization. EPFO works for for the employee. EPFO runs its office, employee salary by utilizing the admin charges received from employee while collecting monthly Contribution.
What happens to Employee Contribution ?
Employee contribution is deposited to EPFO. EPFO use this fund in various profit making Organization to grow the fund. Finally employee get paid after retirement with multiple return.
Who deposit money to EPFO ?
Employer deduct employee contribution from employee before monthly salary payment. Employer deposit both employee and employer contribution to EPFO.
How EPFO runs business ?
EPFO is non profit making Organization. Main business of EPFO is to protect financial security of an employee. EPFO collect contribution and ensure lumpsum fund, recurring monthly income and Insurance after retirement of employee.
Where does EPFO Invest ?
Investment of the collected fund is completely depends in the decision of Central Government. Government tries to grow the collected fund from employee. The investment may be various sector where government want to develop.
What happens to Employer Contribution ?
Employee contribution is segregated to Pension Scheme and EDLI scheme. A part of employer contribution is also used as admin charges by EPFO.
What is admin Charges of EPF ?
0.1% of Basic and DA is deposited as admin charges. Admin charges is required by Employee Provident Fund Organisation to run office, Salary of office staff, ensure office formalities etc.
