All You Need To Know About Basics Of Employer Contribution In EPFO: Key Points

The Employees Provident Fund Organisation (EPFO) has made it compulsory for companies in India to sign up for the Provident Fund (PF) scheme in order to secure funds that can be used by employees after retirement to maintain a comfortable life. Both employees and employers pay a certain amount, which is deducted from the employee's salary and added to their provident fund.

For companies with 20 or more employees, employers contribute 12 per cent of an employee's basic salary to the EPF scheme, out of which 3.67 per cent goes towards the Employees' Provident Fund (EPF), 8.33 per cent goes towards the Employees' Pension Scheme (EPS), capped at Rs 15,000 monthly salary (resulting in a maximum EPS contribution of Rs 1,250) and 0.50 per cent goes towards Employee Deposit Linked Insurance (EDLI).

On the other hand, a 10 per cent rate is applicable for any establishment in which less than 20 employees are employed. Same interest is applicable for: any sick industrial company and which has been declared as such by the Board for Industrial and Financial Reconstruction, any establishment which has at the end of any financial year, accumulated losses equal to or exceeding is entire net worth and any establishment in jute, beedi, brick, coir and guar gum factories industries.

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Here are some key points

Employee contribution: 12% of basic salary, with optional higher contributions

Employer contribution: 12% of basic salary, matching the employee's contribution

Employer contribution cap: Rs 7.5 lakh annually (combined with NPS) for tax benefits

Salary Cap: The employer's contribution to EPS is capped at Rs 15,000 monthly salary.

Interest on EPF: The interest rate is decided annually by the government and is typically between 8 per cent and 8.5 per cent.

Tax Benefits: Employee contributions to EPF are eligible for tax deductions under Section 80C of the Income Tax Act, subject to certain conditions.

Taxable Amounts: Meanwhile, employer contributions exceeding Rs 7.5 lakh in a financial year are taxable. The interest on employee contributions above Rs 2.5 lakh is taxable.

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History and Significance of EPFO

As per the official website, the inception of the Employees' Provident Fund dates back to the enactment of the Employees' Provident Funds Ordinance on November 15, 1951, which was subsequently replaced by the Employees' Provident Funds Act of 1952.

This legislative journey began with the introduction of the Employees' Provident Funds Bill in Parliament as Bill Number 15 of 1952, aimed at establishing provident funds for employees across factories and other establishments.

Over time, this legislation evolved into the Employees' Provident Funds & Miscellaneous Provisions Act of 1952, applicable nationwide in India.

The administration of this Act and its associated schemes falls under the purview of a tripartite body known as the Central Board of Trustees (CBT), Employees' Provident Fund.

The CBT administers three schemes - Employees' Provident Fund (EPF) Scheme 1952, Employees' Pension Scheme (EPS) 1995 and Employees' Deposit Linked Insurance (EDLI) Scheme 1976 for the workforce engaged in the organised sector in India.