EPF refers to Employees Provident Fund which is made by the contribution of both employee and employer to save funds for the better future of their own as well as their children life. Fund transferred to the EPF account are a sort of investment as employee get interest on them. For new employees government has made a facility that government will pay their EPF for first 3 years. To motivate female section of society to work in formal sector government has made a rule that female has to contribute less towards EPF as compared to male section of society. This motivated females to work with formal sector.
EPFO sets the percentage to be contributed by employee and employer.
Rate of deduction percentage:
- Employee have to contribute a minimum amount of his salary to EPF account which is 12 percent of the salary.
- Employee have to contribute this 12 percent every month and moreover employer deducts 12 percent of the employee’s salary than pay him.
- EPF scheme runs along with a sceme known as Employee Pension Scheme (EPS) which means that a part of EPF is transferred to EPS.
- Out of 12 percent of Employer’s contribution 8.33 percent is transferred to EPS account.
- The 12 percent contribution is mandatory to transfer towards EPF account but an employee is free to contribute more than 12 percent up to any extent or we can say up to 100 percent.
- The excess EPF is not mandatory for employers, they can contribute up to 12 percent.
- The contribution of EPF is not calculated on the bases of basic salary but it is calculated on the bases of all the things provided to employee such as basic salary + dearness allowance + commission if any given to the employee.
Final Words: The monthly contribution is tax free up to the amount 150,000. This is allowed under the section 80 C.