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EPF is the main scheme under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. The scheme is managed under the aegis of Employees’ Provident Fund Organisation (EPFO).
What is EPF?
EPF scheme, an employee has to pay a certain contribution towards the scheme and an equal contribution is paid by the employer. The employee gets a lump sum amount including self and employer’s contribution with interest on both, on retirement.
How does EPF Works?
Under the EPF scheme, an employee has to pay a certain contribution towards the scheme, and an equal contribution is paid by the employer. The employee gets a lump sum amount including self and employer’s contribution with interest on both, on retirement.
As per the rules, in EPF, an employee whose ‘pay’ is more than Rs 15,000 a month at the time of joining, is not eligible and is called a non-eligible employee. Employees drawing less than Rs 15,000 per month have to mandatorily become members of ..
The contribution paid by the employer is 12 percent of basic wages plus dearness allowance plus retaining allowance. An equal contribution is payable by the employee also. In the case of establishments that employer less than 20 employees or meet certain other conditions as notified by the EPFO, the contribution rate for both employee and the employer is limited to 10 percent.
For most employees of the private sector, it’s the basic salary on which the contribution is calculated. For example, if the monthly basic salary is Rs 30,000, the employee contribution towards his or her EPF would be Rs 3,600 a month (12 percent of basic pay) while the equal amount is contributed by the employer each month.
It should, however, be noted that not all of the employer’s share moves into the EPF kitty. Out of the employer’s contribution, 8.33% will be diverted to the Employees’ Pension Scheme, but it is calculated on Rs 15,000. So, for every employee with basic pay equal to Rs 15,000 or then 8.33% of that full amount will go into EPS. The balance will be retained in the EPF scheme. On retirement, the employee will get his full share plus the balance of the Employer’s share retained to his credit in the EPF account.