AN OVERVIEW OF EMPLOYEES’ PROVIDENT FUND

ABSTRACT

Employee’s Provident Fund (EPF) is a retirement benefit scheme that’s available to all salaried employees. This fund is maintained and overseen by the Employees Provident Fund Organization of India (EPFO) and any company with over 20 employees is required by law to register with the EPFO. It’s a savings platform that helps employees save a fraction of their salary every month that can be used in the event that you are rendered unable to work, or upon retirement. When you start working, you and your employer both contribute 12% of your basic salary (plus dearness allowances, if any) into your EPF account. The entire 12% of your contribution goes into your EPF account along with 3.67% (out of 12%) from your employer, while the balance 8.33% from your employer’s side is diverted to your EPS (Employee’s Pension Scheme). It’s important to note that if your basic pay is above Rs. 6,500 per month, your employer can only contribute 8.33% of 6,500 (i.e. Rs. 541) to your EPS and the balance goes into your EPF account. These funds are pooled together from many employees like you and invested by a trust. This generates an interest of 8% - 12%, which is decided by the government and the central board of trustees. The annual interest rate is available on the official EPF India website, and is currently at 8.75%. The compound interest that’s decided upon by the government and central board of trustees is paid on the amount standing to the credit of the employee as on the 1st of April every year. While your contributions are made monthly, the interest is calculated yearly. At the start of every year, you have an opening balance (which is the amount accumulated till that point). Your opening balance for the next year would be: opening balance + total monthly contributions + interest on the (old opening balance + contribution). This paper presents an overview of the above in Indian context. 

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