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What is Provident Fund - PF (in India) ?

It is a government-managed retirement savings plan for employees who can contribute a portion of their pension fund on a monthly basis. It is a plan in which salaried people invest during their working lives and enjoy the benefit after retirement or end of employment.
Types of PF A/C

EPF (Employee Provident Fund) - Standard

The EPF is a private sector retirement benefits scheme for salaried employees. The EPF is managed by the Employees Provident Fund Organization (EPFO). The EPFO covers any organization or entity with 20 or more employees.

Employees who are eligible by the EPF scheme make a fixed contribution of 12% of their basic salary and dearness allowance to the fund. However, 12% of the employer contribution is not deposited in the EPF account.

The Employee Pension Scheme Account receives 8.33 percent of the 12 percent payment, while the employee EPF account receives the remaining 3.67 percent.The Employee Pension Scheme will get 8.33 percent of your employer's monthly contribution (up to Rs 1,250).

For FY2022, the EPF Interest Rate is set at 8.1 percent.
EPF Calculation
To understand let us take a e.g. Mr. Y of ABC firm
Employees basic salary + dearness allowance = Rs 18,000

Employees contribution towards the EPF = 12% * 18,000 = Rs 2,160.

Employer Contribution Breakup
A/C of PF challan Contribution % Calculation
Employer’s PF Contribution – A/c No: 1 3.67% 18000*3.67% = 660
Employer’s EPS/FPF Contribution – A/c No: 10 8.33% 18000*8.33% = 1499
EDLI Contribution – A/c No: 21 0.5% 18000*0.5% = 90
Administrative Charges – A/c No: 2 0.5% 18000*0.5% = 90
Total Rs. 2,339

The total contribution by the employer and employee towards the EPF account of the employee
Rs 2,160 + Rs 660 = Rs 2,820
(EPS/FPF – Employee Pension Scheme/Family Pension Scheme, EDLI – Employee’s Deposit Linked Insurance Scheme)

Capping of 15000 Income

Some organisation put a capping of maximum Rs.15000 as Income of the individuals. In such scenario the maximum Employee Contribution is Rs.1800 (12% of 15000) and Employer Contribution is Rs.1920 (13% of Rs.15000)

VPF (Voluntary Provident Fund) – Voluntary Standard

The Voluntary Provident Fund (VPF), also known as the Voluntary Retirement Fund, is the employee's voluntary contribution to his provident fund account. This contribution is in addition to the employee's 12% contribution to his EPF. The maximum contribution is 100% to his Basic Salary plus Dearness Allowance.

Employers are not required to contribute to their employees' VPF.

Once a contribution has been selected in VPF, it cannot be revoked or discontinued until the base tenure of 5 years has been finished. FY2022, the VPF Interest Rate is set at 8.1 percent.

PPF (Public Provident Fund) - Statutory

The Public Provident Fund (PPF) is a tax-free savings vehicle. The scheme's principal goal is to encourage small saving by providing an investment with decent returns paired with income tax benefits. FY2022, the PPF Interest Rate is set at 7.1 percent.

Interest Rate 7.1% per annum.
Maximum Investment Amount Rs.500
Tenure 15 years
Risk Profile Returns Offers guaranteed, Risk-free
Tax Benefit Up to Rs.1.5 lakh under Section 80C

What are the components to be considered for the purpose of PF contribution from the wages ?

After the latest Supreme Court Judgement on Surya Roshni case, dated 28th February 2019, the contribution shall be calculated on the basis of monthly pay containing the following components actually drawn during the whole month whether paid on a daily, weekly, fortnightly or monthly basis:

Basic wages, Dearness Allowances, Retaining Allowances, Conveyance Allowances, Other Allowance, Special Allowance, Leave Travel Allowances, Fixed cash Allowance (Management allowance, educational Allowance, Medical Allowance, Telephone, Food Allowance etc.) , Petrol Reimbursement (without bills and without supporting documentation/data to substantiate the reimbursement is for official purposes) , City Compensatory Allowance or any other allowance paid as fixed component, uniformly and universally having no direct nexus to the outcome of an employee’s normal work.

Which are the excluded components for the computation of EPF ?

These components are excluded while calculating the EPF:

  • HRA allowance (House rent allowance)
  • Attendance allowance
  • Night shift allowance
  • Washing allowance
  • Relocation allowance
  • Overtime allowance
  • Canteen allowance
  • Various Incentives provided for particular employee
  • Bonus or Commissions payable to a particular Employee
  • Tags: Payroll
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