alculate EPF in 2019

Introduction:

Have you ever thought what EPF is and how does it benefit the employees?

EPF or Employees’ Provident Fund is a kind of retirement benefits scheme. Here the contribution of the employees is 12% of their BS, i.e. Basic Salary and DA, i.e. dearness allowances every month. The employee in their accounts contributes an equivalent amount of 3.67% towards EPF and 8.33% towards EPS. This amount can be withdrawn by the employee at the time of retirement or during their service period if required.

EPF Interest Rate

This rate is reviewed every year by the Central Board of Trustees of EPFO. Ministry of finance is also consulted for the same. This review takes place and is set after the end of the year. The current EPF interest rates are 8.65% for FY2018-19.

EPF Contribution

Depending upon the entity making the contribution EPF Contribution consists of two parts: one is Employee’s contribution, and the other one is the Employer’s contribution.

A lower 10% contribution needs to be done by the employee for the cases where the establishment has less than 20 employees. It also applies for the industries 1) Beedi 2) Jute 3) Coir 4) Guar Gum factories and 5) Brick.

The employer makes a contribution of 8.33% towards the Employees’ Pension Scheme, and 0.50% of contribution towards the Employees’ Deposit Linked Insurance and 3.67% is added to the EPF account of the employee. Apart from this, the employer has to pay an extra charge at the rate of 0.50% for administrative accounts. For no contribution in a month, the employer has to pay Rs 75 else the minimum administrative charge is ₹ 500.

How to Calculate Interest on EPF

This EPF interest is calculated every month and is deposited at the end of the financial year in the account.

Follow this example to understand  interest calculation on EPF of the employee:

Basic Salary + Dearness Allowance = ₹ 15,000

Employee’s contribution towards EPF = 12% of ₹ 15,000 = ₹ 1,800

Employer’s contribution towards EPS = 8.33% of ₹ 15,000 = ₹ 1,250

Employer’s contribution towards EPF = Employee’s contribution – Employer’s contribution towards EPS = ₹ 550

Total EPF contribution every month = ₹ 1,800 + ₹ 550 = ₹ 2,350

The interest rate for 2017-2018 is 8.55%.

When calculating interest, the interest applicable per month is = 8.55%/12 = 0.7125%

Assuming the employee joined service on 1st April 2017, contributions start for the financial year 2017 – 2018 from April

Total EPF Contribution for April = ₹ 2,350

Interest on the EPF contribution for April = Nil (No interest for the first month)

EPF account balance at the end of April = ₹ 2,350

Total EPF Contribution for May = ₹ 2,350

Total EPF contribution for May = ₹ 4,700

Interest on the EPF contribution for May = ₹ 4,700 * 0.7125% = ₹ 33.49

The interest will be calculated every month but will be deposited only at the end of the financial year (on 31st March 2018 in this case).

Important Points to Consider:

  1. EPS- Employees’ Pension Scheme

On reaching 58 years of age and still being in service, the employee does not have to contribute.

When the employee re-joins or when he is drawing a reduced pension even then EPS contribution is not required to be paid by the employer.

For the employees joining the service at the age of 50 or after that and is not availing pension have no option of not getting pension contribution as he will not be able to complete ten years of service to avail pension benefits.

  1. EPF- Employee Provident Fund

Maximum wage ceiling for EPF calculation is Rs.15,000 whereas no or zero for international workers.

Higher rate contributions are allowed to be made for the employers, but this should not be more than a certain limit, and for doing it both employee and the employer need to submit a joint request in EPF account for the same.

The employer, however, will have to pay administrative charges at the rate including 0.50% of the employee’s wage above ₹ 15,000

  1. EDLI- Employees’ Deposit Linked Scheme

The contribution made is at a rate of the maximum wage ceiling of ₹ 15,000 irrespective of employees’ share.

This contribution continues even after the employee has completed the age of 58 years and until his service.

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