What is PF in Salary: PF Deduction, Contribution & Benefits Explained

Key takeaways: 
 

• Provident Fund (PF) is a type of retirement savings scheme, introduced by the Government of India.
• PF in salary has a major influence on your take-home salary as you contribute 12% of your basic salary towards it.
• PF also gives you many tax benefits and helps in better long term financial planning.

Bonus Tip: 

Do you know? For an international worker, the wage ceiling of  ₹15000/- is not applicable. 

 Provident Fund is a savings scheme governed by the provisions of the Employees' Provident Fund and Miscellaneous Provisions Act of 1952. It is mandatory for businesses with 20 or more employees.

Think of your Provident Fund as your retirement savings plan where your monthly salary handles your present and the PF scheme takes care of your future. 

What is PF in salary? 

Under the EPFO scheme, both the employee and the employer contribute a fixed percentage of 12% of the employee's basic salary each month towards the PF account. The Employees Provident Fund Organisation (EPFO) manages these contributions and fixes the yearly interest rate.It is mandatory for businesses with 20 or more employees to follow the provisions of EPFO. 

A number of sectors like jute, coir  and beedi factory  employ less than 20 employees and are eligible for a reduced contribution of 10% of the basic salary. 

Read More : How to Calculate PF

Who Contributes PF in Salary and How Much?

Both the employee and the employer contribute a small amount of the salary to the employees’ provident fund. However, their contributions are allocated in different ways. Here is how the PF contribution differs for employee and employers:
 

The above contribution is like a saving amount for your secured future. 

How to calculate your PF in salary? 

To calculate the Provident Fund (PF) balance in your salary for a month, the employer will first determine the interest rate for that financial year. 

For instance, if my basic salary is ₹15,000 per month and the EPF contribution rate is 12%, I will  contribute ₹15,000 x 12% = ₹1,800 to the EPF every month. This process helps me to ensure that I save effectively for my future and retirement.

Also Read : How Much PF Is Deducted From the Salary

What is the importance of PF contribution in salary?  

The Provident Fund offers a secure, long term savings plan with significant financial advantages which are as follows: 
 

• Safe and government-backed savings.
• Helps build a big amount over time.
• Tax benefits under Indian laws.
   

It provides a disciplined path to wealth accumulation, offering valuable tax benefits to the subscriber.

What are the PF withdrawal rules? 

You are allowed to fully withdraw your PF balance under the following conditions:

• You are retired at the age of 58 years.

• You have been unemployed for 2 months or more.

• Or if you have permanently settled abroad.

You can withdraw 75% of your total EPF balance if you are unemployed for 1 month. After 2 months of unemployment, 100% withdrawal of the EPF balance is allowed.

What are the tax benefits of PF in salary? 

Section 80C of the IT Act 1961 states that employed professionals will receive tax advantages of up to ₹1,05,000 for PF account contributions. However, employees cannot deduct taxes from their contributions if they make them to the EPF account for under five years. The income tax is withheld at the source if the period of contribution is less than five years or if the employee removes the PF contribution before that period.

Conclusion: 

PF in salary helps you to build a safe and secured retirement. If you have a proper knowledge of how your PF is calculated and rules related to PF, you can easily avail the advantages of both, the interest as well as the tax benefits. Therefore, both employees and employers need to be well informed about PF in salary and the implications. 

FAQs: 

What is the PF deduction for the Rs 40,000 salary?

The PF deduction for Rs 40,000 salary is Rs 4,800 (12% of Basic Salary + DA).

How to raise a grievance if interest is not calculated for my PF account?

Go to the EPFO grievance portal and choose the type of grievance along with the required documents. 

How does provident fund contribution reduce the income tax?

Under section 80c of Income Tax Act, the amount you contribute every month for the PF is eligible for deduction. Additionally, the interest earned on the PF amount is tax free. 

How are PFs calculated? 

PF is the monthly contribution made by the employer and employee. Both contribute 12% every month and 3.67% goes to the PF whereas 8.33% goes to the employee’s pension scheme (EPS).

What is a PF calculator? 

A PF calculator is an online calculator which helps you estimate the total value of the PF that you will receive or maturity amount that you will get after your retirement.