EPF (Employee Provident Fund) – Calculation, Withdrawal Rules, Interest Rate - YouTube

Press the bell icon while subscribing

so that you get the notification of the latest finance video.

Namaskar, my name is Mukul, and welcome to Asset Yogi.

Guys in today's video we are going to discuss a very important topic i.e EPF.

EPF mean Employee Provident Fund.

If you work on salary in any company, means you are an employee.

So every month some percentage of your salary goes to PF.

In some companies, it's a fixed amount of Rs 1800 per month.

And in some companies, the cut is 12% of the salary

and in some companies, they give a choice for either Rs 1800 or 12% of the salary for PF.

Which one is better for us? What all are the rules?

We are going to discuss it all in today's video.

We'll see the benefits of EPF, the withdrawal process

how we calculate EPF, over which there is a lot of confusion.

So this video is going to be helpful for the employee

simply for them who work in company

or for the companies who need to deduce this pf amount

and also it will help the practicing CA, so stay tuned in this video.

First of all, let's talk about the applicability of EPF.

So any company that has more than 20 working employee need to deduce a PF amount

from their employee's salary and they also need to deposit some amount in a PF account.

And it is mandatory for that employee whose salary is less than Rs 15000.

If salary is more than Rs 15000 then it is not mandatory but companies

give this facility to everyone anyway.

Why do companies give this facility? Because EPF has a lot of benefits.

Retirement planning gets done within the long term.

What are the benefits here?

Firstly you get a good interest rate, you can expect an interest rate of 8 to 9 percent

currently, it is at 8.65 percent, it changes every quarter and you can check the current rate if you search online.

Second benefit is that, the return are tax free

So EPF comes under EEE category, EEE-Exempt Exempt Exempt

It means whatever you invested is also tax-free

you don't need to give tax on any investment as you get benefits under article 80C.

You can also claim tax benefits up to Rs.1 Lakh 50 thousand under article 80C.

second, whatever amount you get in return on interest rate during investment is also tax-free.

Finally, the amount you withdraw at your retirement is also tax-free.

Now because you get good interest rates and also you are saving on taxes

also, the rick is very low as the government backs this.

Therefore EPF turns to be a very good investment.

Talking about some other benefits, you get insurance

if the person taking EPF dies by chance, the family gets all the relief amount

meaning whatever amount it is, the corpus family gets it all.

One other benefit of EPF is that its universal access,

a UAN number is been given to the employee

which we also called Universal Account Number.

So you just need to open an EPF account only once and wherever you worked

you can transfer that same account.

And yes let me you one more thing on tax saving

if you withdraw before 5 years, i.e, if your EPF account is less than 5 years old

and you withdraw the amount due to any reason, you won't get the tax benefits.

There, whatever the amount is, according to your tax slab you will be charged some tax on it.

A lot of people when they leave their job withdraws their EPF funds

and the account is not 5 years old meaning the continuity is not 5 years

you should refrain from doing this ideally.

If you are changing your job you can transfer your same EPF account with the employer.

Now before understanding the calculation of how much of the salary cut is for EPF

and how much does the company deposit to EPS

lets understand the withdrawing process.

If we want the total amount of EPF, we get that at the time of retirement.

Retirement here is considered at the age of 58.

You can withdraw the total amount at the age of 58

from both EPF and EPS accounts.

Two accounts are maintained here, of one is EPF- Employees Provident Fund

and the other is EPS- Employees' Pension Scheme.

We will talk soon about what amount is desposited here.

And secondly, before retirement i.e., you want to withdraw some amount before 58 years

so you can withdraw 90% of the money at 57 years.

Other than before that you can only withdraw money in case of a medical emergency

you need to repay a housing loan, want to buy property, want your kids or siblings to get married, want to get married

in such cases can withdraw money

but all these partial withdraw can only be done after 5 years.

These also have some clauses in some cases you can withdraw after 5 years in some after 7 years

and in some cases after 10 years.

And yes, you can't withdraw 100%, generally, 50% or up to 50 % withdrawal could ve done

depending upon different clauses, you can withdraw that amount only.

Yeah! in only one case you can withdraw 100 % money, in the case of resignation.

If you resign from the company and are unemployed for more than 2 months you can withdraw 100% of the amount.

But here you need to keep one thing in mind if your EPF account is not older than 5 years continuously

then you would need to pay the tax, you will be taxable as i said earlier.

So for the same reason if you are unemployed and don't need money

So its better to continue this EPF account.

If you start working somewhere your EPF account will be transferred as it is to the new employer.

Okay so let's understand the calculation, how much amount do we need to pay

and how much does the company need to deposit?

First, let's know some important things regarding EPF

firstly, an EPF account is mandatory for a company having more than 20 employees.

And yes if a company has registered for EPF accounts and in future the number of the employee from to less than 20

so these companies do need to maintain their EPF account.

Secondly, those employees having salaries less than or equal to Rs 15000

it is a mandate for them to open an EPF account.

And all the calculations of the EPF account depends on salary

and salary to be considered here is basic salary + DA (Dearness Allowance).

In all further calculations, we will consider this as the salary (basic salary + DA).

Generally, there is no DA in a private company so the basic salary will be counted there.

And in the case of government companies and organizations, DA + basic salary is accounted for DA calculation.

Employees and employers need to contribute equally.

The government organizations or the company need to match the same amount as of the employee

and this amount goes directly to the employee's EPF account.

Now let's talk about how much money should be deposited.

Normally in case of an employee having salary less than or equal to Rs 15000 and company having more than 20 employee

In that case, 12% is deducted from the salary towards EPF and salary here is Basic + DA.

So 12% of this is deduced for EPF and whosoever is your employee needs to match and deposit 12% from their side.

12% gets divided into two accounts of which

3.67 % goes towards EPF account that is Employees Provident Fund and

8.33 % goes towards EPS account that is Employees' Pension Scheme.

This was 12 % so employee deposits 12% and so does the employer

other than that employer need to pay an extra 1% charge

so in a way emoloyer gives 13% here.

In this 13% what is that 1%? So 0.5% goes towards EDLI

i.e., Employees Deposit Linked Insurance

It is also important to ensure your EPF and EPS, so this fee is also paid by the employer.

And 0.5% goes to EPF administration charges and is paid by the employer only.

Earlier it used to be 0.65% but from June 2018 it reduced to 0.5% percent.

So this was for normal cases where the employee count of a company or organization was more than 20.

In some cases, the count reduces to less than 20 in that case the employer need to deduce only 10% of the salary

and only 10% needs to be deposited by the employer.

If the employer needs to deposit 10%, of that 8.33% towards EPS is fixed

and rest 1.67 % goes towards EPF.

Now this 10% is not only for organizations having less than 10 employee

it is applicable for other industries too

as if a sick unit is declared, or in some industries where it is mentioned specifically

like the brick industry, in all these industries only 10% is applicable.

Generally, for most of the company, the former case is applicable

employer needs to deduce 12% and deposit 12 % of the calculated salary.

Now there develop two scenarios, one of which is when the salary of an employee is less than Rs 15000.

In that case, what will happen we have already talked about it

12% of employee's salary will be deducted and in EPS 12% here 3.67 % of salary whatever the salary is

let say this employee gets a salary of Rs 10,000 so 3.67% of S1

where S1 i here is for salary hence S1 = Rs 10,000.

So 3.67% of EPF will be deposited by the employer, 12% mean 12% of Rs 10,000 will be deducted

from employee's salary towards EPF.

8.33% of Rs 10,000 will go towards EPS, 0.5% charge will be for EDLI

and administration charges, 0.5% of Rs 10,000 will be added.

So this is a very simple case for those getting salary is less than Rs 15,000.

The other scenarios develop here if the salary is more than Rs 15,000.

Now employers have two options if the salary is more than Rs 15,000.

Of one the employer gives an option for minimum EPF, meaning they will just deposit the minimum EPF

and also deduce minimum salary towards EPF.

So what will be the minimum EPF? It will be Rs 15,000

i.e.,EPF will be deduced from the salary of Rs 15,000 i.e, basic + DA.

Let's suppose an employee gets a salary of Rs 40,000.

Here Rs 40,000 doesn't matter much because the salary is more than Rs 15,000

so 12% of Rs. 15000 will be deduced towards EPf.

And here what is 12% of Rs 15,000? Its is Rs 1800.

You must have seen, only an amount of Rs 1800 is generally deduced per month for EPF.

And the employer deposits the same amount and how much does the employer deposit?

Further, the bifurcation of Rs 1800 i.e, 3.67% of Rs 15,000 gets deposited towards the EPF account

and 8.33% of Rs 15,000 gets deposited towards EPS account.

Similarly, the other charges will be charged accordingly.

This was the minimum EPF option.

Now let's say if employer wants to give extra benefit to all the employee

So they will give an option to opt for Full EPF, many companies give the option for both.

You're in-hand salary increases if you opt for minimum EPF.

But if someone opts for Full EPF their saving gets solidified as we talked about earlier,

interests are good and tax savings are also good so for the reason that you are saving well

you can opt for that option as well.

Now there are also two options in the case of Full EPF, let's discuss those too.

In the first option, 12% of EPF will be reduced from your total salary.

Here we talked about the salary S2,

If let's suppose your salary is Rs 40,000

so 12% of Rs 40,000 will be deduced as EPF.

You deduced the full EPF amount but the employer need not deposit the same amount,

if they want the minimum could also work for the employer in this case.

If they want they can deposit 3.67 % of Rs 15,000 towards EPF and 8.33% towards EPS.

And can pay minimum charges accordingly.

But in most of the companies, you will find that the employer also contributes the FUll amount.

This is also one other popular option as we talked about earlier we saw scenario one of Rs 15,000.

And the minimum EPF option in the case of more than Rs 15,000 is one where

a minimum amount of Rs 1800 per month will be deduced and the same will be deposited by the employer.

The third popular option is this one in which 12% of your salary will be deduced

and the same will be deposited by the employer.

But do keep in mind, at the EPS account you can only deposit only 8.33% of Rs 15,000 max cap.

So the rest amount, total need to be 12% which will be deposited by the employer

so the rest amount that's left is deposited towards your EPF account.

So 12% of your salary minus 8.33% of Rs 15,000 if you subtract, so the rest of the amount goes to EPF.

If you add this potion you will see here it will come out to be 12% of S2

EPF + EPS let me write down here

EPF + EPS that your employer is depositing comes out to be 12%

so in this case, 12% of Rs 40,000 so in this case employer will also deposit the same amount.

So these are the scenarios of EPF contribution

i hope you well understood all the calculations.

In the next video, I will give you a calculator in which you would be able to calculate

At retirement what would be your corpus EPS amount?

So do watch that video too.

If you liked this video, then do press the like button and share this video with your friends and family members.

And if you haven't subscribed to this channel yet,

Then please subscribe to it and press the bell icon so that you get all the notifications of the latest videos.

So we'll meet in the next informative video,

Till then keep learning, keep earning, and as always stay happy.