The Employees' Provident Fund (EPF) is a social security plan that helps employees safeguard their financial future after they retire. It functions by requiring both employers and employees to contribute a fixed percentage of base pay (and dearness allowance, if applicable) to a retirement corpus. All employees who receive a wage are eligible for EPF.
Let us delve a little deeper into the mechanism of EPF.
How Does It Benefit Employers?
Enhanced Productivity: Motivates staff to work with maximum productivity.
Tax Benefits: Decreases taxable income by classifying corporate donations as expenses.
Talent Attraction: Offering a way of financial security attracts top talent.
Employee Retention: Workplace loyalty and job satisfaction are enhanced by EPF.
Compliance and Reputation: Shows dedication to workers' well-being, improving the business's standing.
How Does It Benefit Employees?
Retirement Savings: With a consistent savings plan, it offers a safe financial future.
Loan Facilities and Withdrawal Options: These options enable workers to borrow money or take it out for particular purposes, such as housing, education, or urgent medical requirements.
Insurance Benefits: It consists of a related insurance plan that offers financial stability to employees’ families.
Tax Benefits: EPF contributions are tax deductible, which lowers taxable income.
Contributions by Each Party
As an employee, you contribute a predetermined 12% of your base pay and dearness allowance to your EPF account.
During the first three working years, female employees are required to contribute 8% of their base wage, which then amounts to 12% of their pay.
A 3.67% interest rate will be applied to your Employee's Provident Fund (EPF). This amount is directly deposited into your EPF account, where it builds up together with your contributions and accrues interest.
8.33% (up to a maximum of Rs. 1,250, calculated at a maximum amount of Rs. 15,000) is allocated to your Employee's Pension Scheme (EPS) account. This means that the EPS contribution will only be computed at Rs. 15,000, even if your base pay is higher. The remaining amount is sent to the EPF account.
After you retire, the EPS account will be used to pay you a monthly pension.
Example: Assume that your monthly base pay is Rs. 45,000 and that you also get a Rs. 5,000 dearness allowance.
Employee EPF contribution: Rs. 6,000 (12% of Rs. 50,000).
1,250 is the employer's share of the EPS (8.33% of Rs. 15,000).
4,750 is the employer's share of the EPF (6,000 - 1,250).
A month's worth of EPF contributions will stand at (Rs. 6,000 + Rs. 4750) = Rs. 10,750.
Final Thoughts
The Employee Provident Fund (EPF) guarantees employees financial security. Over time, interest is accrued by monthly contributions made by both businesses and employees. Both parties benefit from this practice in the form of tax benefits. Caring for employees’ financial security shines well on the employer’s part and also guarantees compliance. Moreover, employees benefit from insurance options and retirement savings.
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