Basic Salary and Allowances Considered

• EPF contributions are calculated based on the employee’s basic salary and dearness allowance.
  
• Other components like HRA or bonuses are excluded from the EPF base.
  
• The total monthly wages for EPF purposes include only the fixed eligible components.
  
• If dearness allowance is not applicable, only basic salary is used.
  
• The contribution does not depend on gross or net salary.
  

Employee’s Contribution

• The employee contributes 12 percent of the eligible salary to the EPF account.
  
• For a monthly wage of ₹15,000, the employee’s contribution would be ₹1,800.
  
• This amount is directly deducted from the employee’s salary.
  
• The contribution amount increases proportionately with salary.
  
• Employees may opt for higher contributions under the voluntary scheme.
  

Employer’s Contribution

• The employer also contributes 12 percent of the same wage base.
  
• Out of this, 8.33 percent is diverted to the Employees’ Pension Scheme.
  
• The remaining 3.67 percent is credited to the EPF account.
  
• For a ₹15,000 salary, ₹1,250 goes to pension and ₹550 to EPF from the employer’s share.
  
• This structure balances both savings and pension benefits.
  

Contribution Limits and Ceilings

• The statutory wage ceiling for EPF contributions is ₹15,000 per month.
  
• Contributions for higher salaries may be limited unless voluntarily extended.
  
• If both the employer and employee agree, the full salary can be considered for EPF.
  
• Otherwise, calculations are restricted to the wage ceiling.
  
• EPFO applies interest on the actual balance accumulated in the account.
  

Illustrative Calculation Method

• Suppose basic salary = ₹15,000.
  
• Employee contribution = 12% of ₹15,000 = ₹1,800.
  
• Employer contribution = 12% of ₹15,000 = ₹1,800.
  
• Out of employer’s ₹1,800: ₹1,250 to pension, ₹550 to EPF.
  
• Total contribution to EPF account = ₹1,800 (employee) + ₹550 (employer) = ₹2,350.