Yeah..You heard it correct. Your EPF (Employee provident Fund) makes you rich. Lets see what is EPF and how it will make you rich when you retire.
What is EPF
This is the great scheme introduced by our government to help salaried people in saving money for the retirement. Every month, 12 % of your basic salary is deducted form your salary and it will be accounted in Employee provident fund account which is organized by EPFO . In addition to your contribution to EPF, your employer also contributes to the same amount to your account. This EPF is applicable to employees working in India only, not applicable for NRI’s.
EPF interest rates
The EPF interest rate is decided by the central government Employees’ Provident Fund Organization (EPFO) with the consultation of Central Board of trustees (CBT). Last few years ,interest rate for EPF accounts is fluctuating from from 8-9.5%. Last week, EPFO decided the hike in interest to 8.5 % for year 2012-13 which is 0.25 % more than previous fiscal. This is good news for more than 5 crore employees having EPF accounts.
Below are the EPF interest rates for decade. You can see
2012-2013 –8.5 %
2011-2012 –8.25 %
How EPF is calculated and makes you rich
The employer and the employees need to contribute to the EPF from the monthly basic salary+ DA . The employee contribution is 12% and in the same way employer will also contribute the same amount to EPF and which is resulting 24% of your monthly basic.
For example of your monthly basic is 30000 . So 12 % basic means 3600 will be deducted from your monthly salary. Same amount 3600 will be added by your employer, so approximately 7k per month will be credited into EPF account. So If you are expecting 10 % hike every year then total amount accumulated after 25 years at 8.5 % interest rate will be closed to 2 crores, which will be helpful for your retirement.
This EPF amount is compounded annually. So because of power of compounding the returns will yield to such a huge amount at the end.
Taxation on EPF amount
Interest on EPF account is tax free However, if you withdraw before completing five years of service, then all the previous years’ income gets recalculated and the employer’s contribution and interest received will be added to your current income and it will be taxed as per your tax slab.
You can use below calculator to check how much you will get your EPF amount while retiring.
Check your EPF balance online .
You can check your EPF balance online using below link.
Important Point about EPF
As per the new rules, effective April 1st 2011, all EPF accounts which are not operating from more than 3 years will stop accumulating interest. That means, if you left your previous job and not transferred you PF account for more than 36 months then , all PF contributions which are done before from you and your employer’s side will stop incurring any interest.So once you change your job, ensure to transfer your EPF account and start accumulating interest and reap the benfits at the end. So better take immediate action.
So, Don’t feel sad when you see deduction under Provident fund in your pay slip. It will make you retire rich at the end. Share your thoughts on this.