Most salaried people are confused on various aspects of PF and impact of PF component on the CTC, how is amount contributed to PF invested, how can you check PF balance and how can you withdraw PF amount.
In this post, you will get the complete guide
What is PF in salary?
PF in salary stands for Provident Fund. It is also called as Employee Provident fund.
It is a common component of the CTC structure for any salaried person.
Provident Fund is a fund for your retirement savings to which both you and your employer contribute in equal amount. Employers maintain PF Account with an EPFO registered trust.
Employer’s contribution to PF is directly transferred by your Employer to the Provident Fund Account. Your contribution i.e. Employee’s contribution is deducted from your salary and also deposited in the PF account by the Employer.
What you see in your CTC letter is the Employer’s Contribution which is a Cost to your Company. This is only showing in your CTC letter and not a part of the monthly salary slip.
Further, your contribution as an employee, is deducted from your monthly salary-slip. So what you see in the Salary Slip is amount deducted for Employee’s Contribution.
Employee’s usually also have an option to contribute an amount higher than minimum 12% of Basic Salary.
How is PF calculated? On what amount is PF calculated?
PF is calculated at the rate of 12% on Basic salary. The contribution is made both by employer and employee. So total contribution becomes 24% of Basic Salary.
For e.g. if you earn a basic salary of ₹30,000/- you will be contributing 12% i.e ₹3,600/- every month. An equal amount of ₹3,600/- will be contributed by your employer. Total contribution will be ₹7,200/- per month
For workman, where basic wages and special allowance (if any) is less than ₹15,000/- per month, the PF is to be calculated on Basic Wages + Special Allowance.
How is the amount contributed to PF invested?
The Employee’s Contribution i.e. monthly amount that an employee contributes towards Provident Fund is wholly invested in EPF.
However, the Employer’s contribution is split into two parts:
- 8.33% of Employer Contribution is invested into Employee Pension Scheme subject to a maximum of ₹1250/- per month i.e. 8.33% on ₹15,000/- which is used as a maximum cap.
- Remaining amount is invested into EPF (i.e. amount exceed ₹1250/- above)
Now the important question is where does the EPFO invest :
EPFO’s funds are invested in various debt instruments that promise high security and guaranteed returns.
- 35% needs to be invested in listed debt instruments issued by companies, banks and financial institutions.
- Mandatory for EPFO to invest 45% of their accumulated funds in government securities
- Up to 15% is invested in Exchange Traded Funds
What is the interest rate in PF? How much can you earn in PF?
The rate of interest on EPF is reviewed every financial year by the Government i.e. EPFO’s Central Board of Trustees and vetted by Ministry of Finance.
There has been no major change in the EPF interest rate in the last 10 years and it has been in the range of 8.25% on the lower side to 9.50% on the higher side.
What is the taxability of PF contribution and interest earned on PF?
Employer’s contribution to PF is fully tax-free, subject to certain conditions.
Your i.e. Employee’s contribution to PF is allowed as deduction under section 80C
Interest Earned on EPF contribution is tax free if not withdrawn before 5 years of continuous balance.
This exemption from tax is provided under Section 10(12) of Income Tax Act.
However, If the EPF balance is withdrawn before 5 years, then the interest earned on EPF is taxable under the head “Income from Other Sources”
Is PF deduction mandatory for employees?
As per EPF Scheme 1952, PF deduction is mandatory only for employees whose monthly basic salary plus dearness allowance (if any) is up to ₹15,000/-
However, most companies make PF as a mandatory part of the salary structure for all their employees. This is mainly to encourage retirement savings.
What is EPFO?
The Employees’ Provident Fund Organisation (abbreviated to EPFO), is regulatory body formed under the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952 and is under the administrative control of the Ministry of Labour and Employment, Government of India.
What is UAN?
UAN is Universal Account Number which is allotted by Employee Provident Fund Organisation (EPFO).
While the employee may change employer organisation from time to time, the UAN number remains same and can be used for transfer of PF Account Balance from one employer to another
How can you check your PF balance?
You can check PF balance using the following ways:
- Download the UMANG app on Google play store and navigate to EPFO->View Passbook
- Go to Passbook Link : https://passbook.epfindia.gov.in/MemberPassBook/Login.jsp in EPF India Website
- Sending a SMS with the text “EPFOHO UAN ENG” to Mob No. 77382 99899
- Give a missed call to 011 22 901 406 from mobile number registered with EPFO.
What is UMANG?
UMANG stands for Unified Mobile Application for New-age Governance.
It is a platform developed by Ministry of Electronics and Information Technology (MeitY) and National e-Governance Division (NeGD). It was launched in November 2017 and is a part of Government digital initiatives.
It is designed as a single platform for all Indian citizens to access pan-India e-Gov services from the Central, State, Local Bodies, and Agencies of government on app, web, SMS, and IVR channels.
Hi, I am CA with a passion for personal finance and investing. I use this blog to share helpful money gyan that I have learned the hard way.