Under the Employee Provident Fund (EPF) scheme, employees and employers both contribute equally. However, only a portion of the employers' contribution goes towards the investment fund.
According to regulations, employees and employer contribute 12% of the basic monthly salary to the EPF. Women can choose to contribute only 8% of the basic monthly salary for the first three years. For sick companies or establishments with less than 20 employees, the rate can be 10%.
If your basic salary is ₹30,000 a month, you will contribute ₹3,600, and the employer will contribute the same amount. However, the employer's contribution will not entirely go towards the investment fund. An employer must contribute up to ₹1,250 towards Employee Pension Scheme, depending on the basic pay.
The money contributed by an employer goes towards different schemes. Of the basic salary, about 3.67% goes towards EPF or for investments, and 8.33% goes towards Employee Pension Scheme (EPS). The rule applies if the employee is earning up to ₹15,000 basic salary. If your monthly salary is higher, it will be capped at ₹15,000 for calculating EPS contribution.
Let's understand with an example. If your basic salary is ₹30,000, the employer's contribution for EPS will be ₹1,250 a month. The remaining ₹2,350 will go towards EPF.
But if your basic salary is, say, ₹14,000, the EPS contribution from the employer will be 8.33%, which is ₹1,166.2.
The calculation of the pension you will receive is tricky. There's a formula – pensionable salary X pensionable service/70. However, there are caps on the pensionable salary and pensionable service in this case. To simplify, under the EPS, the minimum pension amount is ₹1,000 per month, and the maximum amount is ₹7,500 a month.
There are some charges as well. You will need to pay 0.5% for Employee's Deposit Link Insurance Scheme (EDLIS), 1.1% for EPF Administration charges and 0.01% administration charges for EDLIS.
(Do you have personal finance queries? Send them to mintmoney@livemint.com and get them answered by industry experts)
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