What is EPF?
The Employee Provident Fund or the EPF is a retirement benefits scheme for salaried employees in the private sector. The Employees Provident Fund Organisation (EPFO) manages the EPF. Any organisation or firm with 20 or more employees gets covered under the EPFO. The Employees Provident Fund Organisation operates three schemes.
- The EPF Scheme 1952
- The Pension Scheme 1995
- The Insurance Scheme 1976.
The employees who fall under the EPF scheme make a fixed contribution of 12% of the basic salary and the dearness allowance towards the scheme. The employer should also make an equal contribution to the EPF scheme. The EPFO Central Board of Trustees fixes the EPF interest rates after consulting the Ministry of Finance. The EPF Interest Rate is fixed at 8.1% for FY2022.
The employee would get a lump-sum amount at retirement, which includes the contributions of both the employee and the employer with the interest payments. However, 12% of the employer contribution does not go to the EPF account. Out of the 12% contribution, 8.33% goes towards the Employee Pension Scheme Account, and the remaining 3.67% goes to the employee EPF account.
It is compulsory for all employees who draw a basic salary of less than Rs 15,000 per month to become members of the EPF. You cannot opt-outopt-out of the EPF scheme once you become a scheme member. An employee can make an enhanced contribution up to a maximum of 100% of the basic salary to the voluntary provident fund. The employer will not match the contribution.
What is an EPF calculator?
The EPF calculator is a simulation, which shows you the amount of money that will accumulate in your EPF account at retirement. You can calculate the lump-sum amount, which includes both your contribution and the employer’s contribution, along with the accrued interest on the investment.
The EPF calculator has a formula box where you enter your current age, your basic monthly salary and the dearness allowance, your contribution to the EPF and your retirement age up to 58 years. You can also enter the current EPF balance if you know the figures. After entering the requisite information, the EPF calculator will show you the EPF funds available at retirement.
How does an EPF calculator work?
To understand how the EPF calculator works, let us have an example.
Employees basic salary + dearness allowance = Rs 14,000
Employees contribution towards the EPF = 12% * 14,000 = Rs 1,680
Employers contribution towards the EPF = 3.67% * 14,000 = Rs 514
Employers contribution towards EPS = 8.33% * 14,000 = Rs 1,166.
The total contribution by the employer and employee towards the EPF account of the employee = Rs 1,680 + Rs 514 = Rs 2,194.
The interest rate is 8.1% for FY 2022-23.
So the interest rate applicable for each month is:
8.1%/12 = 0.675%
Assuming the employee joined the Firm XYZ in April 2019. The total EPF contribution for April will be Rs 2,194. The EPF scheme will not pay any interest for April.
The total EPF contribution for the month of May = Rs 4,388 (Rs 2,194+ Rs 2,194). He receives an interest of Rs 4,388 * 0.70833% = Rs 31.08.
Similarly, the calculation is done for the subsequent months.
How to use the ClearTax EPF Calculator?
- Enter your current age by using the slider.
- Then fill the basic monthly salary and the dearness allowance up to a maximum of Rs 15,000.
- The minimum percentage of contribution to your EPF is 12%. You can increase the percentage by contributing to the Voluntary Provident Fund.
- Fill in the retirement age up to a maximum of 58 years.
- Add the current EPF balance if you know the amount.
- The ClearTax EPF Calculator will show you the EPF funds that will be available to you at retirement.
Benefits of using the ClearTax EPF Calculator
- The ClearTax EPF Calculator shows you the accumulated amount in your EPF fund at retirement. You get an idea of the retirement corpus, which helps you manage other investments in a better manner.
- You may use the ClearTax EPF Calculator to increase your contribution towards retirement. If you feel the corpus accumulated at retirement is not enough to meet your requirements, then increase the percentage of your contributions to get a bigger corpus at retirement.
- The ClearTax EPF Calculator is easy to use and shows the EPF corpus at your retirement in seconds.
- The ClearTax EPF Calculator helps you to plan your retirement. You can increase the contribution percentage if you want to retire at an early age. You get an idea of the EPF corpus at different retirement periods, which helps you get the finances for early retirement.
What must you know about EPF contributions?
- EPF contributions are not taken only from your salary. Your employer is also bound to make equal contributions to your EPF account every month.
- Employees must link the Aadhaar number and the bank account with the UAN.
- You can nominate anyone for your EPF account. In case of the account holder’s demise, the nominee will pay the account balance.
- You can change the nominee by submitting Form 2 to your company’s finance department or the EPFO department.
- About 8.33% of your employer’s monthly contribution (up to Rs 1,250) will be redirected to the Employee Pension Scheme (EPS). This will help you get a monthly pension once you retire and fulfil certain conditions.
- If you decide to quit your job and withdraw the balance from your EPF account once and for all, you will only be able to remove a portion of the amount based on the purpose of withdrawal. Some valid reasons are unemployment, retirement, purchase of land, purchase/construction of a house, renovating a house, wedding, education, repaying a home loan, and medical reasons.
- If you are a retired person and have had continuous employment for the last 10 years, you can withdraw 100% of the EPS account balance.
- In case, you don’t have continuous employment for the last 10 years, you can only withdraw money from the EPS account, according to the slabs based on your previous drawn salary as mentioned in the Table ‘D’ below:
Number of Years of Service Eligible Portion of EPS Withdrawal* 1 1.02 2 1.99 3 2.98 4 3.99 5 5.02 6 6.07 7 7.13 8 8.22 9 9.33
*Effective from 10 June 2008 as stated by the EPFO website. Irrespective of the last drawn salary, the maximum salary considered for this calculation is Rs 15,000. Therefore, if your last drawn salary is Rs 42,000 and you have worked for eight consecutive years, the EPS amount you can withdraw is Rs 15,000 * 8.22 = Rs 1,23,300.
- You don’t have to withdraw the EPF contributions or close the account when you switch jobs. Just provide your UAN to the new employer. The new PF number created by your new employer will still be under your existing UAN.
- You must manually transfer the PF account balance from your previous employer to the PF account created by your new employer by filling Form 13. Alternatively, you can fill Form 11 to transfer the PF contributions to the new account automatically.
- You can check your EPF account balance, transfer request, claim status, request to withdraw, and raise grievances online using the EPFO portal or even on the UMANG app.
How to check PF balance?
Step 1. Visit the government EPF portal
Step 2. Select the location (state, regional branch office) of your PF office
Step 3. Fill the online form with your personal information and the EPF account number shown on your payslip
Step 4. Submit the form after verifying the details provided
Step 5. If all your records are in place, your EPF balance will be sent as an SMS to your registered mobile number.
How to transfer EPF money online?
Step 1. In the event of a job change, EPF can be transferred using the Universal Account Number (UAN), which will remain the same
Step 2. Go to the official EPF member portal and complete the registration
Step 3. Log in once you get the login credentials
Step 4. Visit the Online Transfer Claim Portal and request for EPF transfer using the same login details as above
Step 5. If you are eligible to make the transfer claim online, you can do it without having to submit Form 13
Step 6. Click ‘Request for Transfer of Funds’ and enter your old employment details as directed
Step 7. Get it authenticated by your previous or new employer
Step 8. After entering the details, you will receive a PIN on your mobile
Step 9. Use the tracking ID generated for you to track your application.
Benefits of EPF
- You can nominate a family member as your nominee so that they can avail the pension or the corpus in the event of your demise.
- You will get a fixed income once you retire.
- EPF allows you to invest more than 12% of your basic salary every month under the Voluntary Provident Fund.
- You also get life insurance covered under the EPF.
- When you withdraw from the EPF at retirement, you can avail both the EPS and the EPF.
- You can withdraw early in case of an emergency under certain defined conditions like a job loss, wedding, loan repayment and so on.
FAQs on ClearTax EPF Calculator
Why should I use the ClearTax EPF Calculator?Well, it’s easy to use and shows you the accumulated retirement corpus in the EPF account in seconds. It helps you get an idea of the quality of life after retirement and even decide when you can retire.
What interest rate does the ClearTax EPF Calculator use to calculate the retirement corpus?The ClearTax EPF Calculator will use the interest rates set by the EPFO for the current financial year.
Does the ClearTax EPF Calculator help me to monitor my EPF returns?The ClearTax EPF Calculator shows you the funds that accumulate in your EPF account at retirement age. If you feel the accumulated amount is on the lower side, you can increase your contributions and get a higher amount at retirement.
Where does the EPFO invest my money?Around 45%-50% of the EPF funds are invested in Government Securities and related instruments. You will find 35%-45% of the EPF money invested in debt and related instruments. There is also an investment in short-term debt instruments. The EPF invests around 5% -15% in equities and related investments.
Does EPFO invest in ETFs?Yes, EPFO invests in Exchange Traded Funds or ETFs. You have the EPFO investing in the Sensex and the Nifty50 along with the CPSE (Central Public Sector Enterprises) and the Bharat 22 indices.
Does the EPF offer a high rate of interest?Yes, EPF currently offers 8.1% for 2022-23. It is one of the highest interest rates among fixed income instruments. The EPFO also invests in equity markets through ETFs. It is a relatively small portion of a minimum of 5% up to 15% of the EPF funds. The investment in the EPF Scheme gets a tax deduction up to a maximum of Rs 1.5 lakh per year under opt-out Section 80C of the Income Tax Act, 1961. It falls under the EEE (exempt exempt exempt) category, where the accrued interest and the amount accumulated on withdrawal are tax-free. It makes EPF one of the most tax-efficient investments. However, if the employer’s contribution towards employee’s EPF account, NPS and superannuation fund is more than Rs 7.5 lakh, the excess contribution will be taxable as a perquisite in the hands of the employee.