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Employee Provident fund is a government backed Saving scheme applicable to Employees working in an organization. The scheme basically aims at promoting savings to be used post-retirement by various employees all over the country.
The employer and employee contribute 12% each of the employee’s salary to the EPF. These contributions earn a fixed level of interest set by the EPFO.
The amount of interest to be received on the deposit along with the total accumulated amount is totally tax-free, that is, the employee may withdraw the entire fund without worrying about paying any kind of tax on it.
Any organization employing a minimum of 20 workers is liable to give EPF benefits to the workers.
Employee’s Contribution towards EPF:
The Employees’ Provident Fund is a fund where both the employer as well as the employee contributes a part of the salary. These contributions are made regularly on a monthly basis.
In general, the contribution rate for the employee is fixed at 12%. So every month, 12% of basic salary of employee is contributed towards Employee Provident Fund.
Employers Contribution towards EPF:
The minimum amount of contribution to be made by the employer is set at a rate of 12%. This means that the employer match with the contribution of Employee.
Important points:
- The contribution made by the employee goes totally towards the provident fund of the employee.
- The contribution made by the employer is divided into different parts.
- Total contribution made by the employer is distributed as 8.33% towards Employees’ Pension Scheme and 3.67%
- towards Employees’ Provident Fund.
- Apart from the above-made contributions, an additional 0.5% towards EDLI has to be paid by the employer.
- Certain administration costs towards EDLI and EPF standing at the rate of 1.1% and 0.01% respectively also have to be incurred by the employer.
- This means that the employer has to contribute a total of 13.61% of the salary towards this scheme.
Interest Rate on EPF:
The interest rate for the financial year 2017 – 2018 was 8.55%. The interest even though calculated on a monthly basis, is transferred to the Employees’ Provident Fund account only on a yearly basis on 31st March of the applicable financial year.
If the contribution is not made into an EPF account for thirty-six months continuously, the account becomes dormant or inoperative. Interest is not provided on the amount deposited in inoperative accounts of retired employees.
The interest earned on inoperative accounts is taxable as per the member’s slab rate. For contributions made towards the Employees’ Pension Scheme by the employer, the employee shall not receive any interest. However, a pension is paid out of this amount after the age of 58.
WATCH FULL VIDEO TO SEE EPF INTEREST CALCULATION EXAMPLE.
UAN:
Universal Account Number or UAN is a 12-digit unique number assigned to each and every member who registers with the EPFO. This number is linked with all PF accounts of a member. The member can log in to the EPF member portal using the UAN and access all his PF accounts at one place. UAN is linked with Aadhaar and PAN of the employee. In case the employee fails to link his Aadhaar and PAN with his UAN, he will not be able to avail almost all the online services offered by the EPF member portal. So it is very important for you to register on the UAN site, in order to keep all PF accounts in one UAN Account.
Employee Provident Fund Benefits:
- Tax-Free Savings
- Long-Term Financial Security
- Retirement Period
- Unemployment/Income Loss
- Resignation/Quitting of Job
- Pension Scheme
- Accessible All Over
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