Synopsis

The Employees Provident Fund serves as a robust mechanism for building long-term savings through consistent contributions and the magic of compound interest. Factors like annual salary hikes and stable interest rates greatly influence the total savings, while optional contributions can further bolster retirement finances.

The Employees’ Provident Fund (EPF) is meant for long-term savings where the corpus in the account grows steadily over the years through regular contributions and compound interest. Both an employee and their employer contribute to the EPF account of the employee, subject to the applicable EPF rules. For organised sector employees earning up to Rs 15,000 as basic pay, opening an EPF account is mandatory provided their organisation is a member of the Employees’ Provident Fund Organisation (EPFO). For those earning more than Rs 15,000 as basic pay and who joined their service on or after September 1, 2014, the EPF membership is optional.



As the salary of an employee increases during their working years, they can also increase their monthly contribution from the minimum of Rs 1,800. Over a long period, the interest earned on the accumulated EPF balance compounds and adds to the retirement corpus. Through regular EPF contributions for a long term, one can build a retirement corpus of Rs 2.23 crore or higher.

EPF: In how many years, can you build a Rs 2.23 crore retirement corpus through EPF contributions?

The Rs 2.23 crore corpus depends on the monthly EPF contributions and for how many years, you make them. If the duration is long, even a small monthly contribution may help build a substantial corpus because of compounding. Similarly, if someone’s monthly contribution is high and the employer also contributes a high portion, they may also build a large corpus in a few years.

To build an EPF corpus of Rs 2.23 crore, let us consider the case of an employee earning a basic salary of Rs 50,000 a month. For calculations, the employee's EPF contribution is assumed to be 12% of basic wages. Let’s see in how many years, can the employee build a Rs 2.23 crore corpus.

The calculation is based on the following figures:

As per the calculation, it may take approximately 30 years for this employee to build a corpus of Rs 2.23 crore. Though the government reviews the EPF interest rate every year, for calculation purposes, we are considering that the rate will remain constant at 8.25%. We are also assuming that the employee will get an average annual salary increment of 6% and hence, their annual EPF contribution will also increase by the same percentage.

How does the EPF corpus reach Rs 2.23 crore?

The money put into EPF keeps earning interest during the entire period. As the salary increases, the employee and employer contributions also go up.



This means the amount going into the EPF account is not the same throughout the 30-year period.



The final EPF balance will depend on the employee's actual salary, yearly increments, contributions, gap in employment, employer contribution and the EPF interest rate declared during the 30-year period.



A 6% annual increase in basic salary can make a major difference over 30 years. If the salary increases at a different rate, the amount deposited into the EPF and the final corpus will also change.

Can an employee make an EPF contribution in excess of the statutory rate of 12%?

Yes. In addition to their regular contribution of 12% of Rs 15,000, an EPF member may make voluntary contributions. The monthly total contribution, which includes both required and voluntary contributions, can reach Rs 15,000. The statutory rate may be the limit of the employer's own share. In accordance with the terms of paragraph 266 of the Scheme, the member may additionally contribute on higher wages, such as more than Rs 15,000, after obtaining approval.

Important FAQs on employment

How long can an EPF member retain their Employees’ Provident Fund (EPF) in their account?

The membership can be retained till the withdrawal of an EPF member’s provident fund dues. However, if the EPF account does not receive any contributions for more than three years, interest won’t be credited to the account after the third year.

Whether an employer can deduct an employer’s EPF share of contribution from the wages of employees?

No. It is not permissible. Any such deduction is a criminal offence.

Whether an EPF member is entitled to full interest on the belated deposit of PF dues by the employer?

After realising the dues, a PF member will be given full interest for each due month, and it will, in no way, affect interest due to members on the contributions paid. The employer will be charged penal interest under Section 7Q and penal damages under Section 14B of the Act, respectively.



Calculator: Bajaj Finserv

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