How To Calculate Pension Contribution In EPF
Mini Balakrishnan
The calculation of pension contribution in the Employee Provident Fund (EPF) scheme is based on the salary and years of service of the employee. The EPF scheme is a social security scheme that is mandatory for all employees earning a monthly salary of up to Rs. 15,000. Both the employee and the employer contribute a percentage of the employee’s salary to the EPF account every month, which is further divided into the provident fund (PF) contribution and the pension contribution.
The pension contribution is calculated as a percentage of the employee’s basic salary and dearness allowance (DA) and is currently set at 8.33% of the basic salary and DA. The employer is responsible for making the entire contribution towards the pension fund.
Formula To Calculate EPF Pension
To calculate the pension contribution in EPF, you can use the following formula:
Pension Contribution = (Basic Salary + Dearness Allowance) x 8.33%
For example, For an employee with a basic salary of Rs. 20,000 and a DA of Rs. 5,000, the total salary would be Rs. 25,000. The pension contribution here would be:
Pension Contribution = (20,000 + 5,000) x 8.33% Pension Contribution = Rs. 2,083.33
This means that the employer would contribute Rs. 2,083.33 towards the pension fund every month for this employee.
It is important to note that the pension contribution in EPF is subject to a maximum limit of Rs. 1,250 per month. This means that even if the employee’s basic salary and DA are higher, the employer’s contribution towards the pension fund would be limited to Rs. 1,250 per month. However, if the employee has completed more than 20 years of service, the entire contribution towards the pension fund would be redirected towards the employee’s provident fund account.
In addition to the pension contribution, both the employer and the employee contribute towards the provident fund account. The contribution towards the PF account is calculated as a percentage of the employee’s basic salary and DA and is currently set at 12% of the basic salary and DA. The employer contributes 3.67% towards the employee’s PF account, while the remaining 8.33% is contributed towards the employee’s pension fund account.
Overall, the calculation of pension contribution in EPF is a straightforward process that is based on the employee’s basic salary and DA. It is important to ensure that the correct percentage is contributed towards the pension fund every month to ensure that the employee receives a steady source of income post-retirement.
