There is also a retirement benefit scheme for employees in the private sector. This scheme is Employed Provident Fund (EPF). This scheme is for the employees working in the organized sector. Employees’ Provident Fund Organization (EPFO) manages this scheme.

In the EPF account, there is a contribution from both the employee and the employer (company). This contribution is 12-12 per cent of the basic salary plus dearness allowance. The interest rates of EPF are fixed every year by the government. For the financial year 2022-23, the interest on EPF is getting 8.1 percent annually. EPF is such an account, in which gradually large corpus is formed till retirement.

Retirement fund on 15 thousand basic salary-

Suppose your basic salary and dearness allowance together is Rs 15,000. If you are 40 years old, then till retirement i.e. by the age of 58, you can have a retirement fund of Rs 27.66 lakh ready. The maximum contribution can be made in the EPF scheme only up to 58 years.

Understand EPF calculation-

Basic Salary + DA = Rs 15,000
Current Age = 40 Years
Retirement Age = 58 Years
Employee Monthly Contribution = 12%
Employer Monthly Contribution = 3.67%

Interest rate on EPF = 8.1% p.a.
Salary growth = 10%
Maturity fund at the age of 58 years = ₹ 27.66 lakh

(Employee contribution is Rs 11.05 lakh and employer contribution is Rs 3.38 lakh. Some contribution is Rs 14.43 lakh.)

( Note: annual interest rate is 8.10 per cent and salary growth is 10 per cent for the whole year of contribution.)

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This contribution is 12-12 per cent of the basic salary plus dearness allowance. The interest rates of EPF are fixed every year by the government. At present, 8.1 percent annual interest (FY23) is there. EPF is such an account, in which gradually large corpus is formed till retirement.

Retirement Fund at ₹15,000 Basic Salary

Let’s say your basic salary and dearness allowance together is Rs 15,000. If you are 21 years old, then you can have a retirement fund (EPF Corpus) of Rs 1.26 crore by the time you retire through EPF i.e. by the age of 58. In this, the condition will be that the interest on EPF remains 8.1 percent till retirement and annual salary growth of 5 percent remains. Changes in this may result in change in retirement corpus. The maximum contribution that can be made in the EPF scheme is up to 58 years.

Check EPF Calculation

Basic Salary+DA= ₹15,000
Current Age= 21 Years
Retirement Age= 58 Years
Employee Monthly Contribution= 12%
Employer Monthly Contribution= 3.67 percent
Interest Rate on EPF= 8.10%
Annual Salary Growth= 5%
Maturity Fund at 58 Years = 1.26 crore (Employee contribution is Rs 23.26 lakh and Employer contribution is Rs 7.11 lakh. That is, some contribution is Rs 30.38 lakh.)

(Note: Annual interest rate is 8.1 per cent and salary growth is 5 per cent for the whole year of contribution.)

Employer’s entire 12% does not go towards EPF

12% of the basic salary and Dearness Allowance (Dearness Allowance) of the employee is deposited in the EPF account. But, the employer’s 12 percent amount is deposited in two parts. Out of 12 per cent contribution of the employer, 8.33 per cent is deposited in the Employee Pension Account and the remaining 3.67 per cent goes into the EPF account.

Understand contribution from ₹15,000 salary

Employee Basic Salary + Dearness Allowance = Employee Contribution in ₹15,000
EPF = 12% of ₹15,000 = Employer Contribution in ₹1800
EPF = 3.67% of ₹15,000 = ₹550.5
Employer’s Contribution to Pension Fund (EPS) 8. 33 ₹ 15,000 Contribution %= ₹1249.5

In this way, the total monthly contribution in the EPF account of an employee with a basic salary of Rs 15,000 in the first year will be Rs 2350 (Rs 1800 + 550). After this, the basic and dearness allowance will increase in the same proportion with a 5% increase in the salary on an annual basis. With which the EPF contribution will increase. It is mandatory for the employees whose basic salary is less than Rs 15,000, it is mandatory to join this scheme.

(Note: This figure for Retirement Fund through EPF Contribution has been taken on fixed interest rate, salary growth and employee and company contribution. This is only an estimate. The corpus may vary due to change in figures.)

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