What is EPF?
EPF, or the Employees’ Provident Fund, is a retirement savings scheme run by the EPFO for salaried employees. Every month, you and your employer each contribute a share of your salary to your EPF account, and the balance earns interest at a rate declared by the government every year.
You contribute 12% of your basic salary and dearness allowance (DA). Your employer also contributes 12%, but 8.33% of salary goes to the Employees’ Pension Scheme (EPS), up to ₹1,250 a month. The rest of the employer’s 12% goes to your EPF account.
The account matures when you retire at 58, and you can then withdraw the full balance. Because the interest rate is set by the government, EPF is one of the safest ways to save for retirement.
Fun fact
If you want to save more, you can contribute more than 12% through the Voluntary Provident Fund (VPF). It earns the same interest as EPF.
What is an EPF Calculator?
An EPF calculator estimates how much will be in your EPF account when you retire, based on your salary, your age, how much you contribute and how fast your salary grows.
The result is an estimate. The interest rate is declared every year and can change, and your actual salary increases may be different from the rate you choose.
Why you should use an EPF Calculator?
- Know your retirement savings: See how much your EPF alone will give you at retirement, so you can plan what else you need.
- See the effect of raises: Your contributions grow with your salary. See how yearly raises add up over a career.
- Decide on VPF: Raise your contribution above 12% to see how much more you would have by contributing voluntarily.
How Does an EPF Calculator Work?
The EPF calculator works on the following inputs:
- Monthly salary (Basic + DA): The part of your salary that EPF is calculated on.
- Your Age: Your current age. Contributions continue until you retire at 58.
- Your Contribution: The share of your salary you contribute, usually 12%.
- Annual Increase In Salary: How much you expect your salary to grow each year.
- Rate of Interest: The current EPF rate, declared by the EPFO.
Each month, your contribution and your employer’s EPF share are added to your account. Interest is worked out every month on the balance at the start of that month, at the yearly rate ÷ 12, and added to the account once a year, as EPFO does. Your salary, and so your contributions, rise at the start of every year.
Monthly interest = Balance × Rate of Interest ÷ 1200
Formula to Calculate EPF with an Example
Consider an example for a better understanding.
- Monthly salary (Basic + DA): ₹30,000
- Your Age: 33 years, so 25 years until retirement
- Your Contribution: 12%
- Annual Increase In Salary: 5%
- Rate of Interest: 8.25% per annum
With the 5% increase, your salary in the first year is ₹31,500, so ₹6,310 goes into the account every month: ₹3,780 from you and ₹2,530 from your employer (12% of salary, minus ₹1,250 for EPS). With interest, the balance at the end of the first year is ₹78,583.
Continuing this for 25 years, with your salary rising 5% each year, you will have about ₹1,00,29,657 when you retire. Of this, ₹39,54,802 is contributions and about ₹60,74,855 is interest.
Things to keep in mind
- Pension is separate: The 8.33% of your employer’s share that goes to EPS is not part of this balance. It pays you a monthly pension after 58 instead.
- Tax benefit: Your contribution qualifies for a deduction under Section 80C in the old tax regime. Interest on contributions above ₹2,50,000 a year is taxable.
- Don’t withdraw when changing jobs: Transfer your EPF to your new employer instead of withdrawing it, so it keeps earning interest and stays tax-free.
- Rate changes: The EPF rate is declared every year. If it changes, your actual balance will be different from this estimate.