How To Calculate Provident Fund (PF)?

The Provident Fund (PF) is one of the most reliable savings schemes for salaried employees, offering financial security in retirement. Understanding how PF contributions are calculated is crucial for effective financial planning. Whether you are a first-time employee or a seasoned professional, knowing your PF balance can help you align your savings strategy to meet long-term goals.

While PF provides a stable retirement corpus, you can further maximise your savings with Bajaj Finance Fixed Deposits (FDs). By investing your PF proceeds, you can earn secure returns up to 7.30% p.a. and enjoy flexible tenures ranging from 12 to 60 months. Open FD. 

Let us dive into the step-by-step process of calculating your PF balance and explore smarter ways to grow your savings.

Calculating your PF balance is straightforward and involves understanding contributions from both the employee and employer. Here is a step-by-step explanation:

1. Determine your basic salary and dearness allowance (DA): PF is calculated on these two components, not on your gross salary.
2. Calculate employee contribution: Multiply your basic salary + DA by 12%.
3. Calculate employer contribution: Employers contribute 12% of your basic salary + DA. However, this amount is split into 8.33% for the Employee Pension Scheme (EPS) and 3.67% for EPF.
4. Add monthly interest: EPF accounts earn compound interest, calculated monthly and credited annually.

For example, if your basic salary + DA is Rs. 20,000, your contribution will be Rs. 2,400 (12%), and your employer’s contribution to EPF will be Rs. 734 (3.67%).

Once you know your PF balance, consider investing it in a Bajaj Finance FD to grow your savings securely. Check latest rates. 

The formula to calculate PF contributions is as follows:

• Employee Contribution: 12% × (Basic Salary + DA)
• Employer Contribution: 12% × (Basic Salary + DA), divided as:
  • 8.33% to EPS (capped at Rs. 1,250 per month).
  • 3.67% to EPF.

Let us take an example:

• Basic Salary + DA: Rs. 25,000
• Employee Contribution: Rs. 3,000 (12% of Rs. 25,000)
• Employer Contribution to EPF: Rs. 917.50 (3.67% of Rs. 25,000)
• Employer Contribution to EPS: Rs. 2,082.50 (8.33% of Rs. 25,000)

Total monthly contribution = Rs. 3,000 (employee) + Rs. 917.50 (employer) = Rs. 3,917.50.

With this formula, you can easily calculate your PF contributions and plan your finances. 

To boost your savings, consider investing your PF corpus in Bajaj Finance Fixed Deposits, which offer assured growth and flexible tenure options. Book FD. 

Calculating employer’s contribution

Employers contribute 12% of your basic salary + DA. Out of this, 8.33% is allocated to the Employee Pension Scheme (EPS), subject to a maximum of Rs. 1,250 per month. The remaining 3.67% is credited to your EPF account. For example, if your basic salary + DA is Rs. 30,000, the employer’s contribution will be Rs. 1,100 to EPF and Rs. 2,500 to EPS.

Calculating employee’s contribution

Employees contribute 12% of their basic salary + DA toward EPF. This entire amount is credited to the EPF account. For instance, if your basic salary + DA is Rs. 35,000, your contribution will be Rs. 4,200 (12% of Rs. 35,000).

Calculation of interest

EPF accounts earn compound interest, calculated monthly and credited annually. The interest rate for FY 2024-25 is 8.25% per annum. The monthly interest rate is derived by dividing the annual rate by 12. For example, if your EPF balance is Rs. 50,000, the monthly interest rate will be 0.6875%. Interest for May = Rs. 50,000 × 0.6875% = Rs. 343.75.

To make the most of your EPF savings, park them in a Bajaj Finance FD for assured returns and flexible payout options. Check eligibility. 

Tax benefits for employees

EPF contributions offer significant tax advantages:

• Contributions are eligible for tax deductions under Section 80C, up to Rs. 1.5 lakh per year.
• Interest earned is tax-free for contributions up to Rs. 2.5 lakh per year.
• Withdrawals after five years of continuous service are tax-exempt.

Tax benefits for employers

Employers can claim tax deductions on EPF contributions under Section 36(1)(iv) of the Income Tax Act. This reduces their tax liability while ensuring compliance with statutory obligations.

Provident Fund is a vital tool for retirement planning, offering financial security and tax benefits. By understanding PF contributions and calculations, employees can make informed decisions about their savings.

To optimise your savings further, consider investing your EPF proceeds in Bajaj Finance Fixed Deposits. With secure returns up to 7.30% p.a. and flexible tenures, Bajaj Finance FDs are an ideal choice for growing your corpus.

Start your journey toward financial growth today by opening a Bajaj Finance Fixed Deposit. Open FD account.