I withdrew my PF amount every time I made a resignation or job hop, and I am deeply regretting it. To be honest, I didn’t know the value of PF, and the calculation. So, how to calculate PF amount?
PF or Employee Provident Fund is a great long-term investment, and once everybody understands the value it gives, nobody would step up to withdraw it. Am writing this post to educate me, and also others, to be more aware of the EPF benefits and why is EPF important?
What is Employee Provident Fund (EPF)?
A long-term investment amount which is contributed by both employer and employees. Finally, it will be handed over to Employee during retirement.
When any Indian Resident joins any company in India, it is mandatory (as per the Indian Government rule) that the employer should open an EPF account for the Employee.
EPF account can only be opened by the Employer, not by the employee.
Eg., My father retired few years ago from a government job (he served the Electricity board for 20 years). He received lumpsum settlement from the government office. Major lumpsum amount was the PF amount accumulated for over 20 yrs.
What is Voluntary Provident Fund (VPF)?
This is an extension to your Employee Provident Fund (EPF)
Usually, 12% of your basic salary is deducted to contribute to PF; and if you wish to add more, it is possible. In fact, it is recommended. Remember money gets doubled due to compound interest!
Contact your HR to contribute more.
What is Public Provident Fund (PPF)?
PPF account can be opened by any Indian Resident. This is very similar like opening a Recurring Deposit account. Employer will not be in this picture at all.
EPF and PPF is completely different.
Is it good to withdraw EPF before retirement?
No, it’s not.
Why? It’s connected to Compound Interest. Compound Interest is an eight wonder in the world. Any investment scheme which offers you compound interest is a gold mine.Do not destroy your gold mine.
Is adding Nominee required?
Highly recommended!! Your loved ones can claim the money on your behalf incase of your demise.
How to calculate PF amount?
Use this free simple calculator to see how the PF amount is calculated and see how it grows in the first year. This is an excellent solution for beginners to understand how PF works and grows. You may customize this calculator on your own way to see how it grows in the future.
I’ve made sure the calculator is 99.99% correct by verifying the calculation examples given across the internet. I’m sure this calculator would be of great help to you!
This is Monthly PF Calculator for 1 year. Find the interest rate for the financial year and divide by 12. Enter into the interest rate % cell. The PF Calculation formula is already plugged into this excel sheet. All you need to do is only enter the Basic Salary.
The Employer also contributes 12% for you
It is mandatory that you should contribute 12% of your salary to PF. The company automatically deducts from your take-home salary, plus the employer also contributes the same 12% and sends it to the government.
So, remember to have 1 PF account across all employers to avoid confusions during withdrawals.
PF compounds annually.
Compound interest is the eighth wonder of the world. Interest on interest is great money growth.
Did you notice the word “compounded”?PF is compounded at a rate of 8.5 to 9.5% which means any person with a basic salary of Rs 25000 could accumulate 1.65 crores in 35 yrs . Look at the growth!
Not only PF, do NOT withdraw any authentic money schemes which have Compound Interest. It’s a HUGE loss.
PF is safe, secure & low risk.
PF is safe because it is with the government. People say ” It is hard to do huge amount as PF withdrawal from the government”, but it is myth. Now the government has a well built online system, and PF withdrawal is far easier than ever.
PF is taxable on premature withdrawals
EPF is taxable at 10 % when withdrawn before 5yrs. The tax rate of 10% is very high.
UPDATE: Full EPF withdrawal is NOT allowed now, only 50% is allowed (This isn’t applicable for women employees who’re leaving employment due to marriage, childbirth). The remaining 50% will be settled only at the age of 56.
Or, if in case you have plans to buy a flat or home, 90% PF withdrawal is allowed.
10% tax applies for the 50% PF withdrawal that is done before 5 yrs.
Tax-free for PF withdrawals of up to Rs 50,000
“One of my friends withdrew his PF INR 1,00,000 in his 4th year after leaving the job, and paid tax of INR 10,000 as a result of premature withdrawal. If he had waited for a year, he could have saved INR 10,000.”
VPF: Contributing more to EPF
Usually, 12% of your basic goes to PF, but you wish to add more, it is possible. In fact, it is recommended. Remember money gets doubled!
PF: Any employee could avail a loan against it
Employees could take a loan against their accumulated funds in employee provident fund. However, it depends on permissible rules and circumstances. Loan for housing, marriage, childhood education is permitted.
Remember Government employees receive a huge amount on retirement? It’s PF. If you had noticed very well, they take loans on PF but they never withdraw it.
Never go for PF withdrawal as long as you are in the service of employment.
Any company which has more than 10-20 employees should open a EPF account for employees. So if you join a very small company which has less than 10 employees, you’ll NOT have a PF account.