Chances are, you are part of the Employee Provident Fund (EPF/ PF) or have at least heard of it. PF is an initiative by the Government to imbibe a habit of saving for the future. Accessible to almost every employee, this is a great tool designed to encourage disciplined savings for retirement. As an added incentive, there are tax exemptions of up to Rs. 1.5 lakh to be availed under Section 80 (C) and with an interest rate of 8.75%.
What is PF & how does it work?
PF is a government run savings scheme where the employee makes a contribution of 12% of the basic salary + DA and the employer matches it with an additional 1.36% towards administrative charges. PF is mandatory for all employees whose basic salary is Rs. 15,000 or less, in an organization with 20 or more employees. Every employee who is part of the PF scheme gets a unique account number like in a bank. The money is deposited to this account periodically and can be withdrawn, pending certain eligibility criteria - the employee has continuous service of at least five years and the withdrawal amount is not more than Rs. 50,000.
What are the PF calculations?
PF calculations follow a preset list of criteria that is set by the government. The mandatory contribution for the employee is 12% of the basic salary + DA, where the limit for calculating is with a basic of not more than Rs. 15,000. For those whose basic salary crosses the limit, the amount is capped at 12% of Rs. 15,000 (Rs. 1,800).
In the event an employee wants to increase the contribution, they can do so to a maximum of 100% of the basic salary under VPF (Voluntary Provident Fund). For the employer, the contribution remains at 12% (plus PF admin charges), irrespective.
|Various accounts of PF Challan||Old Rate||New Rates W.e.f 1-Jan-15|
|A/c No 1: PF contribution account||12%||3.67%||12%||3.67%|
|A/c No 2: PF Admin account||-||1.10%||-||0.85%|
|A/c No 10: EPS account||-||8.33%||-||8.33%|
|A/c No 21: EDLIS account||-||0.50%||-||0.50%|
|A/c No 22: EDLIS admin account||-||0.01%||-||0.01%|
What’s the simplest method for PF calculations?
Gone are the days of tedious hours being spent to calculate the PF of an entire company. Manual entries are now kept to a minimum with the introduction of highly effective software that is integrated with the payroll of each and every employee. To make sure you’re on the right side of the law, it’s automatically up-to-date with the latest statutory compliances. The once time-consuming process of PF calculations is reduced to a few simple steps.
Important PF reports
- PF Monthly report: This is a report that needs to be generated every month and it contains the details of Employee PF, Employer PF, VPF and PF Basic for the employee. Based on the numbers appearing in this report, the company needs to make payments to the Government every month.
- PF - Form 5: This is a monthly report giving a list of all employees who have joined the company in the current month. Based on an optional setting, this report can also indicate all the employees whose payroll has been processed for the first time in this month.
- PF - Form 10: This is a monthly report giving a list of all employees who have left/ resigned from the company in the current month. Based on an option setting, this report can also indicate all the employees whose PF has been settled in this month.
- PF - Form 12A: This is a monthly report giving a summary of the number of employees currently covered under PF, total contribution for the month and other details.
- PF - Form 3A: This is a monthly report giving a summary of all the PF deductions (employee and employer) done for the employee in a given PF Year.
- PF - Form 6A: This is a monthly report giving a summary of Form 3A per employee. This report gives the total deductions done for every employee in a given PF Year.
Providing PF to eligible employees is mandatory and should be adhered to at all costs. It’s imperative to get the calculations right and stay in tune with the latest amendments to the PF rules. If you have any comments or queries, do feel free to drop a line below and we’ll be sure to answer them.
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