The Employees’ Provident Fund or EPF is a recognized statutory body in India that is responsible for maintaining the provident fund of employees. The main purpose of EPF is to serve as a retirement-saving tool for employees. EPF employer contribution plays a critical part in this scheme. But how exactly does that contribution affect your retirement savings?
Before delving into it, here’s a quick overview of the EPF: It is a scheme under which both the employer and employee contribute an equal amount (generally 12% of basic salary) towards the fund. This sum accumulates over time, building a corpus for the employee’s retirement.
Primary Role of EPF Employer Contribution
The significance of the EPF employer contribution lies in the fact that a substantial portion of an employee’s retirement savings is credited by the employer. Often unnoticed, the employer’s contribution quietly boosts the retirement corpus. The cumulative effect of this contribution over an extended career span can be significant. Not just that, it is also equally matched by the employee’s contribution, which doubles the rate at which the retirement fund grows.
Let’s take an illustrative example: Let’s say Mr. A, earns a basic salary of 30,000 INR per month. As per the EPF rules, 12% of his basic salary, i.e., 3,600 INR, is deducted as the PF contribution. Along with this, his employer also contributes an equal amount to the fund.
In this case, the total EPF contribution becomes 7,200 INR per month or 86,400 INR per annum. Thus, one can see that the employer contribution is a significant catalyst in building a handsome retirement corpus.
Tax Benefits
PF employer contribution also bears tax benefits. Under Section 80C of the Income Tax Act, the amount contributed by an employee towards the EPF fund is exempted from income tax, which also includes the equal share contributed by the employer. This undoubtedly amplifies the after-tax rate of return for the fund.
EPF Interest and Employer Contribution
Another essential element that comes into play is the EPF interest rate. The EPF interest rate, currently at 8.5%, is calculated on both the employer and employee contribution. This means that the sum of contributions gets compounded annually, leading to increased growth of the corpus over time.
In conclusion, the EPF employer contribution plays a pivotal part in creating a substantial retirement fund. It not only enhances the corpus but also provides tax advantages. However, it is always wise to understand in-depth how the EPF works, its advantages and disadvantages before solely relying on it for retirement.
A comprehensive financial plan, ideally created with the help of a financial planner, will help you balance your assets and investments to ensure a comfortable retirement.
Summary:
The EPF employer contribution is fundamental in building an employee’s retirement corpus. The employer’s contribution is equal to the employee’s share, thereby fueling the rate at which the retirement fund grows over time. Further, the combined contribution also multiplies through the compounding of the EPF interest rate. Tax benefits associated with the EPF contribution add up to make the EPF Employer Contribution a lucrative aspect of retirement savings. However, all employees are welcome to consider the pros and cons of trading in the Indian financial market, taking into consideration the risk associated with such investments. The article doesn’t aim to provide any financial advice and recommends a proper consultation with a financial advisor to understand all aspects in detail for a comfortable retirement.
