For Salaried Employees, Retirement Planning

How EPF (Employee Provident Fund) makes you Rich

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 %

2010-2011–9.5 %

2005-2010–8.5 %

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.

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About Sravanthi

Hi ..I am Sravanthi, working in IT field and i'm more passionate about managing personal finance. I am writing this blog to help people especially salaried employees to invest their money wisely . Check out the articles ..happy reading :)


5 thoughts on “How EPF (Employee Provident Fund) makes you Rich

  1. nice article . I have’nt heard of compounding before for EPF . Good to know this . Thanks

    Posted by Shekhar | March 4, 2013, 10:17 am
  2. Thank you Shekhar..Keep reading the new articles:)

    Posted by tipsforinvestor | March 5, 2013, 9:51 am
  3. 12 yrs experiance.offences accured two times.1st time reposted a fresh staff.2nd time financial loss no damage to the assets to the corparation.epf were settled.gratuitly rejected stating gratuity should be forefeited wholly as per sub sec 6b
    (ii) of sec 4of payment of gratuity Act1972,Please inform whether Iam eligible to get gratuity.I have commited embezzlement offence But n o financial loss or any assets of the concern.Awaiting your suggestion .

    Posted by RAJAGOPAL | February 12, 2014, 8:10 am
  4. Some companies deduct both employee and employer contribution towards EPF from employee salary only. But, you claim employee contribution only under 80C. Here we are saving but unable to show it under 80C. In this case it is always better to stop paying for EPF and start depositing the same amount in PPF.

    Please let me know if I am wrong.

    Posted by Sunny | October 7, 2014, 11:59 am
  5. what about the interest on the accrued pf contribution for the past service in the same organisation. I always understand that the interest is given for the current year.

    Best regards


    Posted by uma | February 25, 2015, 5:45 am

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