EPFO stands for Employees Provident Fund Organisation which is a statutory body formed by government of India to manage the contributions and benefit of its employees. The retirement benefits for employees in India are provided under the Employees Provident Fund Organization (EPFO).
It is in a way whereby the employer and the employee can make deposits to an agreed retirement age. Such are contributed to an EPF account that accumulates over time to offer money after retirement needs are met.
How Does EPFO Work?
In EPFO scheme there is a contribution both the employer and employee towards EPF account maintained by the employee. The contribution is a twelfth of basic salary plus the DA. The government also design an interest rate each year. For instance, the interest rate was recorded to be 8.1% during the companies’ financial year ending 2022-23.
EPF Contribution Example
Imagine the basic pay plus the dearness allowance is ₹15,000 each month for this illustration. For the following EPF balance estimations, we’ve assumed an annual salary increment of 10%, basic pay as on the first cover date, EPF interest rate of 8.1%, index link factor of 1.02, merger of employer’s contribution in the EPF account and an Illustration type B coverage.
Here’s how it works
Employee Contribution: Of the above, the recovery cost has been established at 12% of the basic salary and DA.
Employer Contribution: 12% of basic pay and DA is paid in two equal parts where 8.33% is contributed to the Employee Pension Account (EPA) and the balance 3.67% to EPF account.
How EPFO Helps in Retirement Planning
EPF savings scheme is a gradual accumulation of personal funds that accumulate over a long period of time. It assists its employees to gather a good amount of money for their retirement by donating a little part of their wages each month. Because the interest rate is governed by the government, and employer’s contributions, the EPF account will offer a steady stream of income post retirement.
