All salaried employees are eligible, with mandatory registration for those earning less than Rs 15,000 per month and optional registration for those earning more.
EPFO Update: How a Rs 10,000 basic salary can lead to a Rs 2 crore retirement corpus
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EPFO: How a Rs 10,000 basic salary can lead to a Rs 2 crore provident fund retirement corpus – See the calculations
There are many investment and retirement schemes available, but none match the features and benefits of the provident fund under the Employees’ Provident Fund Organisation (EPFO). Not only are EPFO interest rates higher than those of other savings schemes, but the EPFO also offers guaranteed returns year after year, ensuring a secure corpus. While other market-linked schemes might provide higher returns than the EPF, they come with inherent uncertainties and cannot guarantee the final corpus at retirement.
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How does EPFO scheme work for employees?
Under the EPFO scheme, the company deducts 12% from the employee’s basic salary and matches it with an equal contribution. Of the employer’s contribution, 8.33% goes to the employee’s Pension Scheme, while 3.67% goes to the Employees’ Provident Fund.
EPF eligibility criteria
To receive EPF benefits, you must meet certain eligibility criteria. Organizations in the formal sector with 20 or more employees are required to register with the EPFO. However, organizations with fewer than 20 employees can choose to register voluntarily. All salaried employees are eligible for EPF. Specifically, employees earning less than Rs 15,000 per month are mandated to register for the EPF scheme, while those earning more than Rs 15,000 can opt for the EPF scheme on a voluntary basis.
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When can you claim EPF?
An employee can access the accumulated EPF corpus upon retirement or when leaving the service, provided he or she meets the necessary criteria. In the event of the employee’s death, dependents are eligible to receive the EPF benefits.
EPFO: How a Rs 10,000 basic salary can grow to a Rs 2 crore retirement corpus
Let’s assume an employee is 23 years old with a basic salary of Rs 10,000 out of a total salary of Rs 40,000. The current EPF interest rate is 8.25%, as announced by the EPFO. The employee expects a 10% annual salary increase until retirement at age 60. Over the next 37 years, the employee will contribute to the EPFO.
According to EPFO rules, the employee contributes 12% of their basic salary, which amounts to Rs 1,200 per month. The employer matches this contribution. Of the employer’s Rs 1,200 contribution, Rs 367 will be added to the employee’s EPF fund. Thus, the total monthly contribution to the EPF is Rs 1,567, and this amount will increase by 10% each year. Additionally, Rs 833 of the employer’s contribution goes into the employee’s Pension Scheme (EPS).
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Based on these criteria:
Employee’s age: 23 years
Service years: 37 years (until retirement at age 60)
Total monthly contribution: Rs 1,200 (employee) + Rs 367 (employer) = Rs 1,567
Annual salary increase: 10%
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Over 37 years, the total deposits amount to Rs 68,46,018. The total interest accrued is Rs 1,30,08,857. Therefore, the total corpus or maturity amount after 37 years will be Rs 1,98,54,875.
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