EPF: Starting with basic salary of Rs 30,000 pm, you can build EPF corpus worth many crores; know how

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As part of the exempt-exempt-exempt category, while deposits up to Rs 1.50 lakh in EPF provide tax exemption under Section 80C of the Income Tax Act, the interest earned on these deposits and the maturity amount are also tax-free. 

EPF: Employees’ Provident Fund (EPF) is a time-tested retirement scheme where crores of Indians make monthly contributions for their respective retirement fund. Employees’ Provident Fund Organisation (EPFO), the organisation that runs EPF accounts, has mandated that an employer will make the same percentage of monthly contribution to their employees as the employees themselves. 

The minimum monthly contribution in an EPF account is Rs 1,800, while the maximum is 12 per cent of the employer’s basic salary. 

Read More: EPF Claim Settlement: How many days does it take for an employee’s provident fund claim to process? Here’s what EPFO says

While the entire 12 per cent contributed by the employee goes into their account, the employer’s 3.67 per cent contribution goes into the employee’s EPF account, while the rest 8.33 per cent into the Employee Pension Fund (EPF), which provides a monthly salary after retirement. 

The EPF contribution is unique since it provides tax-free income. 

As part of the exempt-exempt-exempt category, while deposits up to Rs 1.50 lakh in EPF provide tax exemption under Section 80C of the Income Tax Act, the interest earned on these deposits and the maturity amount are also tax-free. 

Since it provides a fixed compound interest rate of 8.25 per cent, a lot of financial experts suggest that EPF account holders should make the most of the EPF facility by utilising the maximum deposit limit. 

One can also contribute more than 12 per cent of their basic salary to their EPF account. 

However, in such a situation, any income they earn of over 12 per cent contributions will come under the tax ambit.

In this write-up, through expert calculations, you will learn how you can get a retirement corpus of over Rs 3.50 crore by starting with a basic salary of Rs 30,000 a month at 25 years of age and increasing your monthly contribution by five per cent every year.    

Read More: EPF: How to create Rs 1.30 crore tax-free corpus starting with basic salary of Rs 20,000

How to get over Rs 3.50 cr retirement corpus 

Basic Salary: 3,60,000 a year
Initial Investment: Rs 30,000 per year (12% of your basic salary)
Annual Contribution Increase: 5%

Key takeaways

Based on the table and assuming an 8.25 per cent interest rate, you can accumulate a significant sum of Rs 3,40,61,077 in your EPF by retirement at the age of 60. 

Read More: EPFO Rules for Account Holders: EPFO can give benefit of up to Rs 50,000 on your EPF account | Know how

Here’s a breakdown of the key takeaways

Total contribution: You would contribute a total of Rs 41,40,129 throughout your service years.

Employer contribution: It’s important to note that this amount only reflects your employee contribution. Your employer would also contribute an equal amount, significantly boosting the final corpus. Which can be additional from your EPF contribution.

Scenario 1									Scenario 1
Age	Year	Employee’s Contribution						Age			Year		Employer’s Contribution
		Invested Value	FV				Invested Value						FV
25	1	43,200	46,764				25			1		43,200		46,764
26	2	45,360	53,153				26			2		45,360		53,153
27	3	47,628	60,415				27			3		47,628		60,415
28	4	50,009	68,669				28			4		50,009		68,669
29	5	52,510	78,051				29			5		52,510		78,051
30	6	55,135	88,715				30			6		55,135		88,715
31	7	57,892	100,836				31			7		57,892		100,836
32	8	60,787	114,613				32			8		60,787		114,613
33	9	63,826	130,271				33			9		63,826		130,271
34	10	67,017	148,070				34			10		67,017		148,070
35	11	70,368	168,300				35			11		70,368		168,300
36	12	73,887	191,294				36			12		73,887		191,294
37	13	77,581	217,429				37			13		77,581		217,429
38	14	81460	247,136				38			14		81,460		247,136
39	15	85,533	280,900				39			15		85,533		280,900
40	16	89,810	319,279				40			16		89,810		319,279
41	17	94,300	362,900				41			17		94,300		362,900
42	18	99,015	412,481				42			18		99,015		412,481
43	19	1,03,966	468,836				43			19		103,966		468,836
44	20	1,09,164	532,891				44			20		109,164		532,891
45	21	1,14,622	605,697				45			21		114,622		605,697
46	22	1,20,354	688,451				46			22		120,354		688,451
47	23	1,26,371	782,510				47			23		126,371		782,510
48	24	1,32,690	889,421				48			24		132,690		889,421
49	25	1,39,324	1,010,938				49			25		139,324		1,010,938
50	26	1,46,291	1,149,057				50			26		146,291		1,149,057
51	27	1,53,605	1,306,047				51			27		153,605		1,306,047
52	28	1,61,285	1,484,486				52			28		161,285		1,484,486
53	29	1,69,350	1,687,304				53			29		169,350		1,687,304
54	30	1,77,817	1,917,832				54			30		177,817		1,917,832
55	31	1,86,708	2,179,856				55			31		186,708		2,179,856
56	32	1,96,043	2,477,679				56			32		196,043		2,477,679
57	33	2,05,845	2,816,191				57			33		205,845		2,816,191
58	34	2,16,138	3,200,954				58			34		216,138		3,200,954
59	35	2,26,945	3,638,284				59			35		226,945		3,638,284
60	36	2,38,292	4,135,364				60			36		238,292		4,135,364
	Total	4140129	34061077							Total		4140129		34061077

Chart Courtesy: Finnovate